Retail Evolution and Consumer Choice
For many products, consumers frequently have numerous choices as to where they are going to actually obtain the product. Although we are used to thinking of buying automobiles only from dealerships, for example, it is today possible to buy them through brokers or fleet sales organizations that may both (1) offer a lower price and/or (2) provide the help of a neutral third party which does not have a vested interest in the sales of one make over the other.
In general, the evolution of diversity in the retail scene has provided consumers with more choice. In the old days, most consumers had access only to “general” stores for most products. Gradually, in urban environments, specialty and discount stores evolved. Today, a consumer may generally choose to buy most products either at a relatively high price, frequently with a significant amount of service, in a specialty store, or with lower service in a discount store. A special case of the discount store is the category killer--a store that tends to specialize in some limited area (e.g., electronics), lacking the breadth of a traditional discount store often undercutting the traditional discount store on price (which they are able to do because of the bargaining power that results from high buying volumes of a narrow assortment of merchandise from the same manufacturer).
“At Home” Shopping and Electronic Commerce
During the last several decades, the incidence of “at home” shopping has increased. The growth of catalog sales can be traced to advances in computer technology and subsequent list availability (as we discussed in the section of direct marketing segmentation methods). A more recent development is Internet based marketing. Although sales are modest in this domain at the moment, it is too early to judge the total potential of this medium. Although many of the concerns that consumers hold about computer crime tend to be exaggerated and/or largely unwarranted, public fears are a major holdback. Another problem is the demographics of computer and Internet use--the majority of U.S. consumers, and certainly the great majority of residents of even highly industrialized countries, are not regular Internet users. Certain products specifically aimed at heavy Internet users (e.g., records, software) and products/services that require a high level of customization (e.g., airline tickets) may find good opportunities. An interesting problem with Internet commerce, which may well have spillover effects outside the realm of the Net, is the relative ease with which consumers may compare prices of different retailers, resulting in intense price competition. Note that recent legislation has limited taxation of Internet sales in the U.S., in a sense attempting to “jump start” this innovation.
Store Positioning
Positioning of retail stores is essential. In general, stores which excel on a significant dimension seem to perform better--for example, RPG’s food world excels through its intense customer service, while Big Bazaar excels through its efficiency and low prices. Stores which fall somewhere in between—e.g., Nilgiris - tend to do less well since they get “stuck in the middle” and have to compete against both. Obviously, there is a limit to how strongly you can move toward one extreme. For example, if Food world were to double its prices and even double its service, that position would be untenable, and certain extreme discount stores that offer lower prices than Big Bazaar tend not to be successful because they are ultimately not satisfactory to consumers.
A grocery retail chain faces the following consumer behavior issues:
1. Should there be a reduction in number of stock keeping units (SKU) for a particular category?
2. How should the sale of non-promoted categories be looked at in judging promotional effectiveness?
3. Is there a need to classify variety seeking behavior?
4. How should one monitor consumption rates for packaged goods?
5. What are the long term effects of promotion on consumer behavior?
Consumer Shopping Behavior Definition of Buying Behavior:
Buying Behavior is the decision processes and acts of people involved in buying and using products. As Marketers we need to understand our Consumer for the following reasons:
➢ Why consumers make the purchases that they make?
➢ What factors influence consumer purchases?
➢ The changing factors in our society.
Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for:
➢ Buyers reactions to a firms marketing strategy has a great impact on the firm’s success.
➢ The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility to) customers, therefore need to analyze the what, where, when and how consumers buy.
➢ Marketers can better predict how consumers will respond to marketing strategies.
Stages of the Consumer Buying Process
There are Six Stages to Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of complexity. The 6 stages are:
1. Problem Recognition (awareness of need) It is actual difference between the desired state and the actual condition. The stage where marketers help identify the deficit in assortment of products. Simple example Hunger stimulates your need to eat. This can be stimulated by the marketer through product information, in case the consumer did not know he was deficient? Eg. When we see a commercial for a new pair of shoes, It can stimulates your recognition that you need a new pair of shoes.
2. Information search—can be both internal and external.
➢ Internal search, search your memory. This basically your experience or things that affect you which is stored in your memory.
➢ External search if you need more information. Friends and relatives (word of mouth), Marketer dominated sources like magazines, catalogue ; comparison shopping; public sources etc.
A successful information search leaves a buyer with possible alternatives. Hungry, want to go out and eat, evoked set is
➢ Chinese food
➢ Indian food
➢ McDonalds
➢ Pizza Hut etc
3. Evaluation of Alternatives—This is stage when you know that you have quite a lot of alternatives and you need to establish criteria for evaluation, features the buyer wants or does not want. We could Rank/weight alternatives or resume search. May decide that you want to eat something spicy, Indian gets highest rank etc. If not satisfied with your choice then returns to the search phase. Can you think of another restaurant, next time? Look in the yellow pages etc. Information from different sources may be treated differently. Marketers try to influence by “framing” alternatives.
4. Purchase decision—Choose buying alternative, includes product, package, store, method of purchase etc.
5. Purchase—May differ from decision, time lapse between point 4 & 5, product availability. Most of the time the consumers make their purchase decision irrational or emotional. There need not be a rational process all the time. E.g. Ann purchased Levi Jeans just because her neighbor purchased it and she looks good in it. Ann never wears western clothes. In this example you can understand that Ann has been emotional when purchasing the jeans, as she might have assumed that she will also look good or just out of sheer jealously she has done it.
6. Post-Purchase Evaluation—In this stage it is the outcome that is looked into. There are two major outcomes, they are Satisfaction or Dissatisfaction. Have you heard people asking for suggestions after the purchase, True a lot of them need the security of others who would make comments? It is like all human beings to have doubts on the purchase. E.g. A woman buys a pink color sari and comes home, though she likes it she will ask her husband, her friends and every one close to her, their opinion about the sari. This is called Cognitive Dissonance, a inner feeling if she has made the right decision. This can be reduced by warranties, after sales communication etc. Another example is after eating an Indian meal, may think that really you wanted a Chinese meal instead.
Purchase Timing Behavior
The economic assumption underlying the analysis of brand switching and purchase timing for a single product category is the reparability of consumers’ utilities across the different product categories that constitute the basket of goods purchased by consumers. Most grocers generally store related categories together with the assumption that a household’s choice in one category is not independent of its choice in the other. The decision of when to purchase one product category might depend on the decision for a related category.
Such an understanding is useful for the retailer because it helps in getting an idea about what kind of promotions will click with the consumers. A critical issue when studying household purchases of multiple categories is being able to identify the related product categories. This requires a complete characterization of the purchase behavior of households in several different categories. Inter-purchase time also needs to be monitored. There are several sources of the observed correlation in the inter-purchase times across households. One source is related to the nature of the product categories themselves that induce the dependence.
Consumers typically consume these products together and therefore purchase them together, for example, dhoop sticks and camphor. Other sources of the estimated correlation across categories are from (1) consumers visiting the store only on few occasions and consequently making purchases in all categories at the same time, like monthly purchase,
(2) the retailer promoting ‘unrelated’ categories together, which results in the joint purchases of products in different categories, for example, a free toothbrush with a deodorant, or (3) the household exhausts its supply of both products at the same time, which prompts joint purchase.
Interestingly, purchase timing may also be affected by the variety seeking behavior observed in consumers.
In-Store Stimuli, Store Image and Loyalty In-store Choice
Consumer store choice results from a process whereby information on various alternatives is evaluated by the consumer prior to the selection of one of these alternatives. In the application of store choice models it is often assumed that the information-processing strategy underlying store choice is a simultaneous one in which all possible alternatives are evaluated by an individual. A competing assumption, increasingly recognized in a spatial choice, is that individuals initially evaluate clusters of alternatives and then only evaluate alternatives within a chosen cluster.
Fierce competition has always been a hallmark of the retail industry. In recent years, it has become even tougher, as innovative new entrants have upset the status quo and existing retailers have become more efficient. But perhaps the greatest challenge faced by retailers is consumers’ rising expectations.
Today’s consumers have evolved into elusive, finicky targets who have many shopping options and are harder to please. Consumers are more highly informed than ever before and more able to compare prices and products with little time, effort or interaction with a retailer. In addition to being more informed, consumers also shop differently than they have before—often using a combination of going to a physical store and shopping online. It is safe to say that never before have consumers expected more from retailers and exhibited so little loyalty to specific brands.
“Know your customer” is one of the most widely quoted maxims of business—and for good reason. However, companies often talk about the importance of customer knowledge while failing to put action behind their words. Why? Some companies remember the pain involved in failed data warehousing projects or unsuccessful attempts to persuade sales personnel to document customer comments. Other companies engage in modest efforts, such as studying customer profitability or implementing limited CRM software, which may provide some efficiency, but yield little in the way of deep customer insight.
Behavior Basis
Leading retailers, however, recognize that they must go beyond their historical product-focused operations and become more customer focused if they are to remain successful. But what does customer focused mean? First, retailers need to develop an understanding of the customer that is based on customer behavior rather than on geography or demographics. Second, they must learn to use this information across the entire organization— including the C-suite—and not just in the marketing department.
The opportunity for retailers to use customer data and information to build more profitable, lasting customer relationships is tremendous. While gathering data can be fairly easy, making sense of it is an entirely different matter.
One of the first steps to mastering multi-channel customers is to have the technology needed to serve them, learn about them and make better decisions about how to reach them. The merchants can no longer be satisfied with simple demographics such as gender or age group. They also cannot be content with a good picture of an in-store shopper or an online shopper. Instead, the merchant has to have information about what price levels a customer group reacts to, how discounts on various items affect the impulse to shop and buy, and how a target shopper reacts to various stimuli in all the channels they use.
The insight into how a group of customers react to and use different channels can be the piece of information that allows retailers to generate loyalty, improved margins and profitability. Compiling, organizing, analyzing and using this type of complex data takes powerful technology.
Tying It Together
Even more important than computing power, however, is integration. Successful retailers cannot just build better silos of customer information. The greater the number of channels, brands, categories and products involved, the more difficult the task of integrating and analyzing the data. Thus, retailers must create a single view of the customer by combining information from different silos into one complete snapshot of the consumer.
Once retailers have the technology to support and propel their efforts, they must adopt an analytical approach to customer insights. Analytics can take customer information and turn it into information retailers can use across all channels to make effective decisions about pricing, merchandising, advertising, promotions and customer service levels. This approach is based on customer behavior and differs significantly from traditional retail CRM methods. Specifically, this analytical approach uses methods and associated tools to analyze customer behavior in three ways:
1. Purchasing history, such as frequency of visits and market basket 2. Promotional response to merchandising and marketing levers, such as changes in pricing, promotion and category locations 3. Store (physical and on-line) behavior, such as the stores at which they shop and the areas of the store in which they shop.
These dynamic behavioral insights help retailers identify and predict which merchandising and marketing levers cause each customer group’s behavior in each store and each channel. This approach is very different from the customer research and demographic segmentation approaches many retailers have depended upon in the past. It is different because it is driven by actual customer behavior—not how customers say they will behave—and it predicts the factors that will motivate customers to make future purchases. With this information, retailers are prioritizing customer segments and developing detailed strategies to influence them to buy more products, more often, and in ways that are more profitable to the retailer.
It is worth noting, however, that although purchasing and loyalty card data is extremely valuable in the analysis, it is not absolutely essential. In its absence, retailers can still take a much more fact-based approach to developing customer insights through customer segment and attitudinal analysis using existing data and customer observation.
With the appropriate technology and analytics working for a retailer, what’s missing in leveraging the multi-channel customer? What will propel the retailer to the top? Customer insight is necessary, location is still important, ease of access is a differentiator, but the new mantra may well be innovation, innovation, innovation Visual Merchandising (VM) is the art of presentation, which puts the merchandise in focus. It educates the customers, creates desire and finally augments the selling process. This is an area where the Indian textile and clothing industry, particularly, the SMEs lack adequate knowledge and expertise. This inadequacy is best reflected in poor presentation/display and communication in various national and international exhibitions. Organization often tend not to realize that the store image plays a very important role in communication and conveying messages to its customers Marketers are trying to deliver greater value through adopting shelving techniques. They follow FIFO (first in first out) techniques.
VM Helps in
➢ educating the customers about the product/service in an effective and creative way.
➢ establishing a creative medium to present merchandise in 3D environment, thereby enabling long lasting impact and recall value.
➢ setting the company apart in an exclusive position.
➢ establishing linkage between fashion, product design and marketing by keeping the product in prime focus.
➢ combining the creative, technical and operational aspects of a product and the business.
➢ drawing the attention of the customer to enable him to take purchase decision within shortest possible time, and thus augmenting the selling process.
Store Loyalty
According to American Marketing Association – Store Loyalty is defined as-In context to Consumer Behavior “ The degree to which a consumer consistently patronizes the same store when shopping for particular types of products.”
In context to retailing “ A condition in which a customer regularly patronizes a specific retailer.”
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