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By Jil McIntosh
Recently, consumer data giant J.D. Power lost its founder, James David Power III, who died Jan. 23 at the age of 89.
The company Power created would turn into a powerhouse, trusted by consumers and valued by automakers, although that sometimes generated some controversy as well.
While most of us know it for its auto data, the company – which Power sold to McGraw-Hill in 2005 for US$400 million; it’s now owned by a private equity firm – also rates such industries as insurance, retail stores, travel and hospitality, utilities, electronics, and financial services.
Known to all as “Dave,” Power grew up in Massachusetts but later moved to California. From an early job as a dealer auditor for Ford’s tractor division, he moved to a market research firm and often worked with auto clients. With his experience, he felt he could start his own research firm.
He founded J.D. Power and Associates in 1968. Its office was Power’s kitchen table, and the “Associates” were his wife Julie and their children. He believed car companies were too busy listening only to what their executives had to say, and ignoring feedback from customers. He planned to collect that feedback on their behalf.
His first client, in 1969, was Toyota. The Japanese automaker established its U.S. headquarters in 1957 but took a while to make a dent in the market. It hired Power to see what customers wanted in their vehicles, and incorporated the rustproofing and brake improvements requested in his surveys.
Power continued to ask consumers about their cars. His children stuffed questionnaires into envelopes, and included a quarter in each as an incentive for recipients to answer them. Power gained national exposure in 1973 when one of his surveys involved Mazda’s rotary engines. The engines were problematic, and when the Wall Street Journal broke the news on its front page, the story was based on Power’s data. It jump-started his reputation as a champion for consumers who wanted reliability when spending their hard-earned cash.
In the 1970s and 1980s, Power launched studies that are company cornerstones to this day, including the Customer Satisfaction Index and Initial Quality Study. When it got a high score, Subaru became the first automaker to mention its J.D. Power ranking in an ad, which it ran during the 1984 Super Bowl.
Power’s company was growing rapidly, and in the 1990s, it established an office in Japan, launched Canadian surveys, created a new system for gathering and analyzing sales data from American dealerships, and began its non-automotive surveys.
In the following decade, it opened offices in Mexico, Germany, and China; and bought valuation company NADA Used Car Guide. Dave Power sold his company in 2005 and stepped down as chief, but stayed on as a consultant for some time afterward.
So how did questionnaires, completed by consumers for free, turn J.D. Power into a multi-million-dollar business? The answer is that Dave Power gathered all the information he could and knew what it was worth. He wasn’t afraid to point out defects – each study lists the top and bottom companies – and he disliked the traditional dealer network, which he felt was bad for consumers and inflated the car’s price, even as he gathered sales data from those same dealerships.
But he also knew automakers wanted to tailor their products to customer preferences, and they liked to advertise high scores they earned in his studies. So, Power publicly released only a small portion of his survey data for free, and sold the bulk of it to the automakers for high dollars. And when a company won a quality award and wanted to say so, it had to pay Power a fee to allow it, and submit its advertising for approval.
J.D. Power isn’t the only company to make money this way, but some critics claimed it couldn’t be impartial while financially linked to the automakers it assessed. Dave Power always dismissed the criticism, saying he only provided unbiased consumer feedback, and that automakers wanted to know what was wrong as well as what was right, so it could be fixed.
Exactly what J.D. Power measures also has pros and cons. Its influential Initial Quality Study asks about issues after 90 days of ownership. This can include problems that aren’t the car’s fault, but an owner who hasn’t yet figured out how to work some of the high-tech features. Still, as proponents point out, a poor score for that reason may indicate functions that need redesign for ease of use. (Power’s Dependability Award surveys are after three years of ownership, so owners are more likely to cite vehicle repairs, rather than function unfamiliarity.)
People also tend to be quicker to complain about something than compliment it — which might help explain how Tesla, with its legions of die-hard fans, finished dead-last the first time it was included in an Initial Quality Study. The how was even odder than the why: 15 states, including Tesla’s home base of California, require survey companies to get an automaker’s permission before speaking to its customers, and Tesla said no in all of them. There were enough questionnaires from other states to include the electric-car manufacturer and then place it last, but even so, due to lower respondent numbers, J.D. Power didn’t officially rank it against other brands.
Still, more than half a century after Dave Power wrote his survey questions at his kitchen table, an automaker can confidently advertise a J.D. Power award and know it’ll impress consumers, even if they’re not always exactly sure what the award actually measures. And for many automakers, that’s more than worth what it costs.