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Expanding J.D.'s Power


Over the past 36 years, J.D. "Dave" Power has earned a reputation as high priest of customer satisfaction. His company, J.D. Power & Associates, can put even the most commanding carmaker in a tizzy with a less-than-terrific rating of a new car. Power has expanded his empire to include ratings of everything from hospitals to satellite dishes. And the 73-year-old statistician isn't done. His new targets: auditors, which J.D. Power ranked publicly for the first time in a survey published on Nov. 9.

Power has come a long way from the days when he and his late wife, Julie, tabulated survey responses on their kitchen table in Calabasas, Calif. Today his Westlake Village (Calif.) company generates over $145 million a year in revenues -- a fivefold increase over the past decade. Power, who owns a majority stake in the company, declines to reveal its earnings. But he says its car business is profitable, as are consumer-based ratings of telecommunications providers, homebuilders, and utilities. Just how much influence Power's opinions will have on number-crunchers isn't yet clear. Still, he hopes his auditor ratings will become an annual rite. "That's how we want to grow -- globally and into nonautomotive areas," he says.

Whether the firm is rating sport-utility vehicles or cell-phone providers, Power tends to stick to a similar methodology. Take its best-known auto industry initial quality survey. Power mails out more than 100,000 surveys to recent car buyers, who are asked to report problems they encounter during their first three months of ownership. The results are ranked by complaints per 100 vehicles. Power releases highlights in free reports, but carmakers who finish tops in various categories have to pay to advertise their rankings. Companies can buy more detailed survey results; they can also hire J.D. Power consultants to advise them on how to improve their scores.

PROMISE AND PITFALLS

A top ranking from Power can have a profound impact. Hyundai Motor America saw sales of its Sonata jump 12% in the month after it was named the best entry- level midsize car, thanks in part to the Power mention in its ads. "We find people in focus groups bringing the J.D. Power name up spontaneously," says Chris Perry, national advertising manager at Hyundai.

Power's name hasn't always brought him fortune and adulation, however. Critics contend there's a conflict in selling consulting services to companies you also rate. Power counters that the companies seeking the consulting help are "the ones that have the problems." Last year he touched off a storm when he wrote an opinion piece for The Wall Street Journal blasting carmakers for sticking with an inflexible distribution system that he believes inflates car prices and prohibits dealers from selling many brands under one roof. Dealers protested. Ford Motor Co. later chose not to rehire Power for a dealer certification program. "It's primarily a business decision," says a spokeswoman for Ford.

Undeterred, Power continues to capitalize on his ubiquitous brand. To support the car surveys, the firm opened a Munich office in October. China and India branches will open next year. Power is seeking ways to fund the expansion with the help of investment banker Evercore Partners Inc. Rather than selling the company, Power says he would like an investment partner. Among the names bandied about is The McGraw-Hill Companies (MHP), parent of BusinessWeek. A McGraw-Hill spokesman says it is company policy not to comment on possible transactions.

Power learned the promise and the pitfalls of market research early in his career. After earning an MBA from the University of Pennsylvania in 1959, he went to work for Ford, General Motors (GM), and tractor maker J.I. Case. He became disillusioned after watching managers rewrite his reports -- in effect telling the top brass what they wanted to hear. In the mid-1960s he found a more receptive ear at chain saw maker McCulloch Motors Inc., which was having trouble cracking the consumer market. Power's research showed that the saws needed to be smaller, cheaper, and able to withstand months of idleness. McCulloch took his advice and sales soared.

RANKLING WANKEL

In 1968, Power set off on his own. The persistent entrepreneur cold-called Toyota Motor Corp. (TM) several times before finally persuading the son of the company's founder to let him survey Toyota forklift buyers. Power's biggest break came in 1973, when Mazda Motor Corp. started hyping its new Wankel rotary engine. On a hunch, Power bought a list of Mazda owners from market researcher R.L. Polk & Co. and sent surveys to customers. Several respondents reported having major engine trouble. Power sold the report to other carmakers, one of whom leaked it to the press. Soon other automotive giants called requesting Power's expertise, including Mazda's top U.S. executive, who invited Power in for a meeting. "I'd been trying to get to him for a year," Power recalls.

Even though he ceded day-to-day management to CEO Stephen C. Goodall, five years ago, Power is not slowing down. He often travels to industry events and client meetings, and is a popular guest lecturer at several business schools. A devoted family man, he spent years caring for his late wife, who succumbed to multiple sclerosis in 2002. She would often accompany him to auto industry events in her wheelchair. "She was the chief," he says. "She put up a good fight." Power remarried last year.

A list of Power's recent surveys shows just how devoted the founder is to guiding his company's growth. There's the South Africa Initial Quality Study on cars, for example, and the Thailand Original Tire Customer Satisfaction report. Power vows that even if he brings in an investor, he'll stick around. After all, the man who preaches the importance of quality needs to make sure his own company maintains his high standards.

By Christopher Palmeri in Westlake Village, Calif.


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