Consumer Dilemma to Purchase Hybrid Car

By Kooi Chung Leng, Tooi Ai Chin and Abu Bakar A Hamid

As industrialisation continues to evolve, exacerbating environmental problems such as global warming and climate change have raised the concern across the globe. Road transport is primarily the most notable source of pollution in the world. With the sophistication in environmental technology, a variety of environmentally friendly products have been introduced in the market and hybrid vehicle is highly recommended. However, in Malaysia automotive market demand for hybrid vehicle is still considered very low compared to non-hybrid vehicles and thus to conduct a study on consumer’s adoption toward hybrid car is timely. The study investigated the relationships between marketing mix (4Ps), environmental concern, governmental incentive and purchase intention of hybrid car in Malaysia. A total of 372 valid samples were collected using convenience sampling technique. The Structural Equation Modelling (SEM) by using Smart-PLS was employed to investigate the significance of individual path correlations, measurement model, and overall fit of structural model. The results of the study revealed that marketing mix (4Ps), governmental incentive, attitude, subject norm and perceived behavioural control showed a significant and positive relationship with hybrid car purchase intention. In addition environmental concern exhibits the moderation effect among those relationships.

• Language: English
• Publisher: Partridge Publishing Singapore
• Release date: Jun 30, 2020
• ISBN: 9781543758856

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Copyright © 2020 by Leng, Chin, Hamid.

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews.

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CONTENTS

Dedication

CHAPTER 1 Automotive Industry Challenges

CHAPTER 2 Doumentary Research

CHAPTER 3 Research Protocol

CHAPTER 4 Data Evaluation

CHAPTER 5 Discourse And Discovery

References

Appendix A

DEDICATION

To my beloved parents

This is the first present son gives to you,

KOOI CHUNG LENG

To my loving hubby and little daughter,

TOOI AI CHIN

To my passionate Fazila and Aysha

ABU BAKAR A HAMID

CHAPTER 1

Automotive Industry Challenges

1.1 Introduction

As industrialisation continues to evolve, exacerbating environmental problems such as global warming and climate change have raised concern across the globe (Lissner and Fiher, 2016). Significant changes in the climate have caused natural disasters, including storms, shrinking polar ice caps, flooding, droughts, ozone-layer depletion, and rising sea levels (Hansen et al., 2016). Environmental issues are becoming global issues (Pereira, 2015). Consumers have begun to realise that their consumption patterns affect the ecological environment and are willing to change their purchase behaviours to become more environmentally friendly (Joshi and Rahman, 2015).

The automotive industry can be regarded as one of the major industries contributing to environmental pollution (Aithal, 2016). The increasing number of vehicles and worsening congestion across the world has become the root cause of air pollution. Carbon dioxide (CO2) emissions from the transportation sector accounts for a significant percentage of global CO2 emissions (Zhang and Cooke, 2009). The combustive processes in the engines of vehicles generate many different toxic gases such as hydrocarbon, carbon monoxide, and nitrogen oxides (Hooftman et al., 2016). CO2 can be categorised as one of the main greenhouse gases (GHGs) that contributes to global warming (Russel, 2013). Fuel consumption of vehicles also produces GHGs and causes climate change. This ecological deterioration has generated increasing interest in environmental protection as it jeopardises the survival of humankind. If environmental scientists are unable to develop solutions to curb these problems, serious consequences may follow such as natural disasters, economic depression, and social instability (Berlemann and Wenzel, 2016).

Recently, consumers have become increasingly aware of the dangers of ecological problems such as air pollution, global warming, climate change, and waste disposal. They have also begun to opine that vehicles of the future should be not only fuel-efficient, but also environmentally friendly. In recent years, competition has been underway among car manufacturers to produce more environmentally-friendly vehicles (Zhang et al., 2014). Therefore, the market for fuel-efficient vehicles with low carbon emission has expanded. In addition, price fluctuations of gasoline has led to consumers’ adoption of more fuel-efficient vehicles such as hybrid cars (Romm and Frank, 2006). The transformation of consumer behaviour towards environmental awareness has led car manufacturers to penetrate niche markets by adopting green- technology approaches (Sruthi, 2008).

As such, this study aims to investigate the influence of the 4Ps of marketing mix, perceived behavioural control, subjective norms, attitude, and governmental incentives on consumers’ purchase intention for hybrid cars in Johor Bahru. The marketing mix can be regarded as an important business tool used by marketers in marketing strategies (Kotler et al., 2016). The results will offer insightful information to car manufacturers to understand the most influential factors affecting consumers’ purchase intention for hybrid cars in Malaysia. It is imperative for marketers to understand the consumers’ purchase behaviour with respect to their products or services before developing marketing strategies (Kotler and Armstrong, 2016). In fact, comprehensive knowledge of consumer behaviour is critical for marketers to gain a competitive edge in the market.

1.2 Background of the Study

The considerable CO2 emissions have become an important global issue due to the rising demand for transportation, expanding urbanization, and economic development (Cheng and Lu, 2015). The transportation sector can be regarded as one of the main sources of CO2 emissions, accounting for 28% of overall emissions, of which 85% can be attributed to road transport (Mustapa and Bekhet, 2015). The transportation sector relies heavily on petroleum products, including gasoline (66%), diesel (32%), and natural gas (2%) (Indati and Bekhet, 2014). The Malaysian government has promulgated its commitment to reducing the country’s emissions by up to 40% by 2020 (Zaid et al., 2015). Inevitably, concerns are raised toward governmental efforts in mitigating CO2 emissions because they may hinder the growth of the transportation sector, which in turn possibly impairs economic development. Khalid (2014) suggested that technology advancement of vehicles could reduce the rate of growth and intensity of CO2 emissions by improving vehicular fuel efficiency and capability without influencing economic growth.

The market for vehicles can be categorized into two fields: hybrid cars and those with internal combustion engines (Cao et al., 2013). In this study, a hybrid car can be regarded as a vehicle that optimizes the use of innovative technology and natural resources. Its minimal consumption of energy lessens ecological pollution and destruction. A hybrid car is a vehicle that uses two or more engines for mobilisation. The combination of an electrical motor and an internal combustion engine is one of the unique characteristics of hybrid cars (Demirdoven et al., 2004). The sales of hybrid cars have been increasing since their launch in 2007 (Malaysia Automotive Association, 2015). Due to fluctuations in fuel prices, Malaysians look forward to fuel-efficient and innovative vehicles in order to reduce the dependence on petrol (Hong et al., 2012). According to the World Energy Council (2016), the reserves of global petroleum was expected to be depleted within a few decades. Therefore, seeking alternative fuels and methods for cars can diminish the overdependence on fuels and curb the aftermath of price fluctuations.

In Malaysia, the sales of hybrid cars have increased gradually since 2008 (Table 1.1). This phenomenon can be attributed to reasons such as the rising popularity of hybrid technology, greater awareness of environmentally-friendly cars among consumers, and launch of new models by car manufacturers. However, the sales of only 604 hybrid cars from 2008 to 2010 reflect a markedly inferior sales performance compared to conventional cars. In order to stimulate the sales of hybrid cars, the Malaysian government has proclaimed full exemption on excise tax and import tax for hybrid cars with an engine capacity lower than 2,000 cc in the National Budget 2011. The tax exemption was extended until the end of 2013 and

significantly improved the sales of hybrid cars in Malaysia. The market of hybrid cars gained momentum in Malaysia: the total sales units of hybrid cars rose sharply from a mere 328 units in 2010 to 8,334 units in 2011 (Malaysia Automotive Association, 2012).

Table 1.1: Total sales of vehicle in Malaysia 2008–2015

Source: Malaysia Automotive Association, 2016

As shown in Table 1.1, the sales of hybrid cars declined precipitously from 18,967 units in 2013 to 7,534 units in 2014, as attributed to their decidedly higher prices in the absence of governmental tax incentives (Malaysia Automotive Association, 2015). The industry of hybrid cars has evidently encountered difficulties to survive in the automotive market without the intervention from the government. In addition, hybrid cars face fierce competition from conventional cars which provide fuel efficiency at lower prices. In sum, hybrid cars have struggled to establish their position in the market as their sales have reached only 1 percent of the total car sales in 2014. Therefore, in order to survive in the niche market, it is imperative that hybrid cars offer advantages in terms of product features, promotional strategies, financial strategy, and distribution channel.

According to Jekria and Daud (2016), Malaysians exhibit high levels of environmental concern toward environmental issues. However, such concern might not be reflected by their purchasing behaviour towards green products (Ooi et al., 2012). A major reasons is that the typically higher prices of green products – particularly for hybrid cars – than general products. In most cases, environmental concern is insufficient to induce actual purchases of hybrid cars (Teoh et al., 2016). Undeniably, environmental concern motivates consumers to consciously avoid specific products or brands. Therefore, it is vital to investigate whether environmental concern translates into actions among car buyers in Malaysia.

1.3 Statement of the Problem

Malaysia has encountered serious environmental problems caused by economic growth, rapid mobility, and urbanisation. In fact, Malaysia is one of the fastest-growing countries in terms of air pollution, CO2 emissions, and energy consumption. In addition, GHG emissions in Malaysia have worsened more drastically than other countries (Khalid, 2014). In this regard, transportation has become the dominant contributory source of CO2 emission. In Malaysia, the transportation sector accounted for 22.9% of total CO2 emissions, of which 85.2% originated from road transport (Briggs and Leong, 2016). According to the International Energy Agency (2012), CO2 emissions attributed to the sector were projected to rise by 50% by 2030 and over 80% by 2050. As such, the use of hybrid cars can be a viable solution to achieve the mitigation of CO2 emissions.

Considering the hazards of transportation-related emissions on mankind’s living environment, efforts have been undertaken by the government and researchers to determine the best solutions to reduce CO2 emissions (Mustapa and Bekhet, 2015). The Malaysian government has introduced and developed environmentally-linked policies to conserve and preserve natural ecosystems such as the National Green

Technology policy involving energy products, manufacturing services, and transportation (Hanif, 2013). The aim of governmental green initiatives is to improve green consumerism behaviour among its citizens (Amran et al., 2012). One of the government-driven efforts in reducing CO2 for the transportation sector is the removal of excise duties for hybrid and electrical cars. Undeniably, the demand for hybrid cars soared consequently – the meagre sales of 327 units in 2010 rose to more than 8334 by the end of 2011 (Malaysia Automotive Association, 2015). However, the sales fell 40% to 7534 when the tax exemptions were discontinued in 2013. Furthermore, the sales of hybrid cars have remained low compared with passenger cars (non-hybrid). This implies that the priority to promote the adoption of hybrid cars in Malaysia cannot rely solely on governmental subsidies (see Table 1.1). In fact, in the automotive industry, the product itself is a key element of the marketing mix for establishing competitive advantages.

Despite the numerous green initiatives by the government and the private sectors, the acceptance of green products, including hybrid cars, among consumers has remained discouragingly low (Phuah et al., 2012). It is evident that the discontinuation of exemption for excise tax and import tax can only exacerbate the demand for hybrid cars in Malaysia. The unwelcomingly high prices of hybrid cars without tax exemption are a shortcoming when competing with conventional cars. Therefore, examining consumers’ purchase intention has become imperative for the survival and success of the automotive industry (Maheswari, 2015).

To date, hybrid cars in Malaysia have recorded weak market penetration as shown in Table 1.1. To capture greater market share, vehicle manufacturers and dealers need active strategies to promote consumer awareness and acceptance of environmentally-friendly vehicles (Neizari et al., 2017). A review of Malaysian mass media shows ineffective promotion strategies to stimulate the sale of hybrid cars. The advertisements about hybrid car in Malaysia are very limited. Now, car dealers depend heavily on government exemption efforts as a sole method to promote hybrid cars as the price of a hybrid car is relatively higher than a conventional car. In addition, the place strategy adopted by hybrid car dealers in Malaysia is weak and offers a minimal competitive advantage compared with conventional cars’ place strategies (Knez and Obrecht, 2017). The potential car buyer faces difficulty finding a hybrid car to inspect or test. The inaccessibility of hybrid cars has influenced consumer purchase intention towards it (Chew et al., 2016). The buyer of hybrid cars only can see and test drive the hybrid car in selected showrooms of authorised dealers. This situation has reduced the consumer purchase intention toward hybrid cars and encouraged them to consider conventional vehicles instead. Due to the under-developed place-related information of hybrid car dealers, the consumers encounter difficulty in searching for information for sales and service centres.

It is necessary to revise a marketing mix strategy that motivates consumers’ adoption of hybrid cars. Malaysian consumers do not consider themselves responsible for the environment, perhaps due to insufficient green marketing strategies at the wrong time or when there is weak demand in the market. Marketers and researchers have not given adequate effort to develop the adequate marketing mix strategies including product, promotion, price and place in the automobile industry (Rahbar and Abdul Wahid, 2011). This study aims to develop the marketing mix strategy for use in green vehicles such as hybrid cars in a move away from adopting the marketing mix strategy established for conventional car usage.

The hybrid car, a green product, combines two different energy sources – an electrical motor and a conventional engine – to mobilise the car (Teoh and Mohd Noor, 2015). Unlike Europe, Japan or the United States, the concept of hybrid cars is still considered relatively new in the automotive market in Malaysia (Yong et al., 2013). Many studies have explored consumers’ purchase behaviour towards vehicles in Malaysia; however, they have revolved around traditional vehicles. Only a few studies have focused on hybrid cars, including Hong et al. (2012), Wong et al. (2013), Kooi et al. (2014), Jayaraman et al. (2015), and Teoh et al. (2015). This study is one of the pioneering studies to examine the impact of the marketing mix (4Ps) on purchase intention for hybrid cars in Malaysia.

The prohibitively high costs of green products such as hybrid cars explain the lesser inclination among consumers to purchase environmentally-friendly products, despite their concern and awareness towards environmental issues (Ooi et al., 2012).

Theoretically, this behaviour can be explained as a value-action gap (Azjen, 1991; Ohtomo and Hirose, 2007). Numerous studies have elucidated the gap between the possession of environmental concern and environmental awareness, and the actual display of environmentally-friendly behaviour (Hans et al., 2012; Durif et al., 2012; Joshi and Rahman, 2015; Terlau and Hirsch, 2015). However, few have investigated the value-action gap in relation to hybrid cars, particularly in developing countries such as Malaysia.

Environmental concern have been found to be an influential predictor of many purchaser attitudes and behaviors (Huang and Liu, 2017) and thus has the potential to explain why and how environmental concern relate significantly to a widely increased awareness of the conservation of natural ecology. People with high environmental concern show a higher willingness to purchase green products and participate in environmental protection activities (Wu et al. 2019). When people purchase green products, their perception of environment will get intensified (Maniatis, 2016). In environmental studies, consumers’ environmental concern has been found to decisively influence their environmentally-friendly purchase intention (Lasuin and Ng, 2014; Junior et al., 2015; Almossawi, 2014). However, some studies suggested the absence of such a relationship (Ramayah et al., 2010; Ziaur and Muhammad 2013; Dagher et al., 2015). Given such discrepancies in the literature, the moderation effect of environmental concern is to be explored in this study. In addition, despite the copious research into the moderating effect of environmental concern on consumers’ purchase intention (Kim and Choi, 2005; Aman et al., 2012; Khan et al., 2012; Khaola et al., 2014), few studies have examined the moderating role of environmental concern on the relationship between the marketing mix (4Ps) and consumers’ purchase intention toward hybrid cars in Malaysia.

Focus on exploring solely the influence of the marketing mix (4Ps) on the purchase intention for hybrid cars is insufficient. Therefore, marketers should identify and analyse external environmental factors to establish effective marketing strategies to meet their business objectives and minimize errors that may lead to performance-expectation gaps (Guota, 2013). Buying hybrid cars can be considered as a high-involvement purchase (Oliver and Lee, 2010). External environmental uncertainty is a risk to strategic managers because it hampers their ability to establish long-term plans and to make strategic decisions to maintain company’s competitive advantages in the market (Koumparoulis, 2013).

Green purchase intention has been found not to be initiated by merely pro- environmental motives (Joshi and Rahman, 2015). In fact, non-environmental attributes including the product, promotion, price and place likewise critically affect consumers’ green purchase intention (Boulstridge and Carrigan 2000; Carrigan and Attalla, 2001). Additional factors underlying purchases of hybrid cars include fuel economy (Turrentine and Kurani, 2006), engine power (Lai et al., 2015), safety (Kassim et al., 2016), lower price (Kotler et al., 2016), service centre (Jaravaza and Chitando, 2013), and salespeople’s performance (Kumar, 2014). Despite in-depth scholarly exploration of consumers’ purchase behaviour towards traditional vehicles in Malaysia, few studies have concentrated on hybrid cars that consider environmentally-friendly behaviours (Hong et al., 2013; Jayaraman et al., 2015).

The 14th general election on 10 May 2018 witnessed the tectonic political shift in which the long-ruling Barisan Nasional Coalition was defeated by Pakatan Harapan (PH), led by Tun Dr Mahathir Mohamad. The new National Automotive Policy (NAP) 2018 is still a work in progress and will be formally announced by the middle of this year. The existing National Automotive Policy (NAP), implemented in 2014, has focused on energy-efficient vehicles (EEVs). According to the Ministry of International Trade and Industry (MITI), the penetration of EEVs increased for the fourth consecutive year in 2017, accounting for 52% of the vehicles sold in the domestic market. It remains unclear whether the new government will continue to adopt the automotive policy, or to encourage the adoption of hybrid cars in Malaysia. Given such uncertainty in governmental involvement, the survival of hybrid cars is rife with unpredictability. In addition, the new government has allocated three billion ringgit to subsidise gasoline until the end of 2018 to keep RON 95 gasoline and diesel at fixed prices. The stability of gasoline prices is anticipated to maintain the status quo of the demand for or dependence on petrol, and to affect the demand for fuel-efficient vehicles such as hybrid cars.

An EEV can be defined that any vehicle that meets a set of standards of fuel efficiency and carbon emissions (Simpkin et al., 2012). The types of EEVs include vehicles with internal combustion engines, electric vehicles, and hybrid vehicles (Mansor, 2018). Under the National Automotive Policy 2014, the Malaysia government intended to strengthen the automotive industry as it has aimed to be the hub for EEVs and associated components for the Southeast Asian region. It is envisioned that the EEV penetration in Malaysia is expected to reach 50% in 2017, 80% in 2020, and ultimately 100 % in 2025 (MAI, 2018). Due to the higher fuel efficiency and cleaner emission of EEVs, their manufacturers are entitled to tax exemption and will be given priority in acquiring business licenses for establishing manufacturing plants in Malaysia. A fierce competition exists between hybrid cars and their counterparts with internal combustion engines. The main merits of hybrid cars are their higher fuel efficiency and less carbon dioxide emission (Tan et al., 2012). However, non-hybrid cars including vehicles with internal combustion engines and electric vehicles can increasingly attain fuel efficiency and less emission easily. To ensure the continued survival of hybrid cars in the Malaysia automobile market, the sole reliance on the merits of fuel efficiency and less emission is insufficient. Exploring the influence of other factors such as the 4Ps of the marketing mix and governmental incentives on consumers’ purchase intention for hybrid cars is necessary to revitalize the demand for hybrid cars in the domestic market.

The TPB model is a widely-cited, well-established, and parsimonious theoretical framework with strong empirical academic support that predicts consumers’ intention and behaviour (Yakasai and Jusoh, 2015). Despite its comprehensive, premise and strong prediction of intention and behaviour, the TPB has been criticised for its narrow sufficiency of the three original components, i.e. perceived behavioural control, subjective norms and attitude (Hasbullah et a., 2014). Given this shortcoming as suggested in the literature, the adoption of external factors has been proposed by modifying the existing theory to enhance the predictive ability on intention. Except for three constructs from