Retail marketing Chapter Two and Three

CHAPTER TWO

THE COMPETITIVE BEHAVIOR OF RETAIL INSTITUTIONS

2.1The Nature of Marketing Channels

A channel of distribution comprises a set of institutions which perform all of the activities
utilized to move a product and its title from production to consumption. Additionally, market
channel is a set of interdependent organizations that eases the transfer of ownership as products
move from producer to business user or consumer.
Channel Members negotiate with one another, buy and sell products, and facilitate the change
of ownership between buyer and seller in the course of moving the product from the
manufacturer into the hands of the final consumer.

Marketing Channels are working with the aim of delivering customer value. Channel members
add value to a product by performing certain channel activities expertly, such as;
 Marketing
 Packaging
 Financing
 Storage
 Delivery
 Merchandising
 Personal selling
Channel functions performed by intermediaries;

Channel structure
The common channel structures for consumer and industrial products are depicted as follows;

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The above chart shows the four ways manufacturers can route products to consumers.
1. Direct channel is used to sell products directly to consumers. No intermediaries are used.
Examples are telemarketing, catalog shopping, on-line shopping, and television shopping
networks.
2. At the other end of the spectrum, an agent/broker channel may be used in markets with
small manufacturers/retailers that lack the resources to find each other. The agents or
brokers bring the manufacturers and wholesalers together for negotiations, but they do
not take title to merchandise.
3. Most consumer products are sold through distribution channels similar to the retailer
channel and the wholesaler channel.

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Notes: the five channel structures common in business and industrial markets.
1. Direct channels are typical in business and industrial markets. Manufacturers buy large
quantities of raw materials, major equipment, processed materials, and supplies directly
from other manufacturers, particularly if detailed technical specifications are required.
The channel from producer to government is also a direct channel.
2. Companies selling standardized items of moderate/low value often rely on industrial
distributors. Industrial distributors are wholesalers and channel members that buy and
take title to products.

Levels of Distribution Intensity

Channel intensity: the number of intermediaries at each level of the marketing channel.

2.2. The Nature of Retail Competition and Competitive Strategies of Retailers

High-profit retailers want to develop strategic plans that provide a differential advantage that
competitors can overcome only with a substantial investment of time and money.

 In the competitive marketplace, retailers compete on 5 major fronts:

 The price for benefits offered
 Service level
 Product selection
 Location or access: the overall convenience of the retailer
 Customer experience

 Non-Price competition
 Competing on price alone is a no-win situation
 It’s the easiest to copy
 Non-price variables are directed at enlarging the retailer’s demand by offering customers
benefits beyond simply the lowest price.
 Non-price competition include, but not limited to:

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• Store positioning - Identifying a well-defined market segment using

demographic or lifestyle variables and appealing to this segment with a
clearly differentiated approach.
• Offering private-label merchandise that has unique features or offers
better value than do competitors
• Providing additional benefits for the customer
• Mastering stock-keeping with its basic merchandise assortment.

Types of Competition

 Intra-type- two or more retailers of the same type compete directly with each other for
the same households.
 This is the most common type of retail competition.
 Inter-type-two or more retailers of a different type compete directly by attempting to sell
the same merchandise lines to the same households
 Divertive Competition- retailers intercept or divert customers from competing retailers,
can be either in the form of intertype or intra-type .
 Most retailers operate very close to their breakeven point.
 Break-even point - Total revenues equal total expenses and the retailer is making
neither a profit nor a loss.

Future Changes in Retail Competition

 Changes in retail competition are likely to come from:

 Non-store retailing- Direct sales, catalogs, and the internet or e-tailing
 New retailing formats- Such as Off-price retailers, Supercenters, Recycled
merchandise retailers, Rentals
 Integration of technology- Include, Direct Store Delivery systems (DSDs), Radio
Frequency Identifiers (RFIDs), Customer identification cards
 Increasing use of private labels

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CHAPTER THREE
THE BUYING BEHAVIOR OF CONSUMERS

Consumer buying behavior (Engel, Kollat, & Blackwell): those acts of individuals directly
involved in obtaining and using goods and services, including the decision processes that
precede and determine these acts. Understanding consumers’ behavior and “knowing Customers”
is never simple. Customers may say one thing and do another. They may not be in touch with
their deeper motivations.
Consumer buying behavior mainly focuses on issues: How do customers make decision with
regards to patronize a retailer and to buy merchandizing? What social and personal factor
affects customer purchase decision? How can retailer get customers to visit their stores more
often and buy more merchandizing during every visit? Why and how retailers group customers
into market segments?
2.1 Buying Process
The Buying Process

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1. Need Recognition

Consumer’s need could be stimulated by: advertising and direct mail, visual merchandise in
store, signage, displays, or by suggestions by sales associates

Types of Needs

• Utilitarian Needs – theses needs are satisfied when consumers go shopping to accomplish a
specific task. It is associated with work. Shopping needs to be easy and effortless like a
grocery store.
• Hedonic needs – when consumers go shopping for pleasure. It is associated with fun.
Satisfied when purchases accomplish a need for entertainment, emotional, and recreational
experience as in department stores or specialty stores.

Some Hedonic Needs

 Stimulation: Ex: Background music, visual displays, scents
 Social experience
 Learning new trends
 Status and power: Ex: upscale health resorts
 Self-reward
 Adventure: Treasure hunting for bargains
• Conflicting needs- customers make trade-offs between their conflicting needs. Cross
shopping

2. Information Search
o Amount of Information Search depends on the value from searching versus the cost of
searching.
Factors affecting amount of information search
1. Product Characteristics
• Complexity
• Cost
2. Customer Characteristics
 Past experience
 Perceived risk
 Time pressure
3. Market Characteristics
 Number of alternative brands

Sources of Information

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1. Internal Sources – are information in a customer’s memory such as names, images and past
experiences with different stores.
2. External Sources – are information provided consumer reports, advertising and Word of mouth.

How can retailers limit the information search?

Information from sales associates

Provide an assortment of services

Provide good assortments

Everyday low pricing

Credit

Internet, information search, and price competition

i. Profound impact on consumers’ ability to gather external information

ii. Number of stores visited is no longer limited by physical distance

iii. Information about the quality and performance at a low search cost

iv. Retailers using an Internet channel can differentiate their offerings by providing better
services and information

3. Evaluation of Alternatives

Multi attribute attitude model:

 Customers see a retailer, product, or service as a collection of attributes or characteristics

 Predict a customer’s evaluation of a retailer, product, or service based on:

• Its performance on relevant attributes

• The importance of those attributes to the customer

4. Purchasing Merchandise or Services

o Once the consumer has selected the brand and retail outlet, he/she must complete the
transaction, referred to as purchasing the product

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o Customers do not always purchase a brand with the highest overall evaluation; because the
high-rated item may not be available in the store.

How can a retailer increase the chances that customers will convert their merchandise
evaluations into purchases?

5. Post purchase Evaluation

 Satisfaction
• A post-consumption evaluation of how well a store or product meets or exceeds
customer expectations
 Becomes part of the customer’s internal information that affects future store and product
decisions
 Builds store and brand loyalty

6. Customer Loyalty

Brand Loyalty
• Committed to a specific brand

• Reluctant to switch to a different brand

• May switch retailers to buy brand

Store Loyalty
o Committed to a specific retailer

o Reluctant to switch retailers

2.2 Types of Buying Decisions

a. Extended Problem Solving

 Consumers devote time and effort analyzing alternatives!

 With high risks:

a. Financial risks – purchasing expensive products or services

b. Physical risks – purchases that will affect consumer’s health and safety
c. Social risks – consumers will believe product will affect how others view them
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What do Retailers need to do for Customers engaged in Extended Problem Solving?

 Provide a Lot of Information

• Use Salespeople rather than advertising to communicate with customers

 Reduce the Risks

• Offer Guarantees

• Return Privileges

b. Limited Problem Solving

 Some prior buying experience

 Purchase decisions process involving moderate amount of effort and time!

 Customers engage in this when they have had prior experience with products or services
 Customers rely more upon personal knowledge
 Majority of customer decisions involve limited problem solving

What do Retailers need to do for Customers engaged in Limited Problem Solving?

It depends…

If the Customer Is Coming to You, Provide a Positive Experience and Create Loyalty
Make sure customer is satisfied

Provide good service, assortments, value

Offer rewards to convert to loyal customer

If the customer goes to your competitor’s store, change behavior

Offer more convenient locations, better service and assortments
Encouraging Impulse Buying
 Impulse buying: one common type of limited problem solving

 Influence by using prominent point-of- purchase (POP) or point-of-sale (POS)

 Have salespeople suggest add-ons

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 Have complementary merchandise displayed near product of interest

 Use special displays

 Put merchandise where customers are waiting

c. Habitual Problem Solving

 Store brand loyalty

 Purchase decision process involving little or no conscious effort!

 For purchases that aren’t important to the consumer

 For merchandise consumers have purchased in the past
 For consumers loyal to brands or a store

What Retailers Need to do for Customers to Engage in Habitual Decision Making

If the Customer Habitually Comes to You, Reinforce Behavior

-Make sure merchandise in stock

-Provide good service

-Offer rewards to loyal customer

If the Customer Goes to Your Competitor’s Store, Break the Habit

-Offer special promotions

2.3 Buying Influences

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Family influencing buying decisions

 Purchases are for entire family to use

 Whole family participates in decision making process

 Retailers work to satisfy needs of all family members

Reference Groups

 A reference group is one or more people whom a person uses as a basis of comparison for
beliefs, feelings and behaviors.

 Reference groups affect buying decisions by:

• Offering information

• Providing rewards for specific purchasing behaviors

• Enhancing a consumer’s self-image

Eva…. looks to
• Soccer player Mia Hamm and tennis player Maria Sharapova for the selection of athletic wear

• Jessica Simpson for casual fashion advice

Store advocates:
• Customers that like a store so much that they actively share their positive experiences with
friends and family.

Culture

 Culture is the meaning, beliefs, morals and values shared by most members of a society
• Western culture: individualism

• Eastern culture: collectivism

 Subcultures are distinctive groups of people within a culture

2.4 Buying Considerations: Outlet Selection and Choice

Selecting a retail outlet involves the same process as selecting a brand. That is, the consumer

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 recognizes a problem that requires outlet selection

 engages in internal and possibly external search
 evaluates the relevant alternatives, and
 applies a decision rule to make a selection
A. Outlet Choice Versus Product Choice

Outlet selection is obviously important to managers of retail firms such as Amazon.com, Sear,
and L. L. Bean. But it is equally important to consumer goods marketers. Three basic sequences
a consumer can follow when making a purchase decision:

1. Brand (or item) first, outlet second;

2. Outlet first, brand second; or

3. Brand and outlet simultaneously

Attributes Affecting Retail Outlet Selection

Retail outlet selection involves a comparison of the alternative outlets on consumer’s evaluative
criteria:

 Outlet Image

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 Retailer Brands
 Retail Advertising
 Outlet Location and Size
Outlet Image - Store image - perception of all the attributes associated with a retail outlet.

As the above tables suggest, overall retailer image (both Internet and store-based) relates to both
functional and affective dimensions.

Retailer Brands- Store brands are closely related to store image, and at the extreme, the store or
outlet is the brand.

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 Traditionally, retailers carried only manufacturers' brands, and only a few, such as
Sears and Wards, developed their own brands.

 Increasingly retailers such as Wal-Mart and Target are developing and promoting
high-quality brands with either the store’s name or an independent name.

 The key to success of store brands--high quality at a reasonable price.

Retail Advertising - Retailers use advertising to communicate their attributes, particularly sale
prices, to consumers.

 Tracking the purchases of an advertised item understates the total impact of the
ad.

 Spillover sales are the sales of additional items to customers who came to
purchase an advertised item.

Retailers evaluating the benefits of price or of the promotions must consider the impact on
overall store sales and profit.

 Studies show that price is frequently not the primary reason for selecting a
particular outlet.

 Many retailers could benefit from emphasizing service, selection, or affective

benefits.

 Online retailers advertise in mass media to build image and attract consumers.

Price Advertising Decisions - Retailers face three decisions when they consider using
price advertising:

1. How large a price discount should be used?

2. Should comparison or reference prices be used?

3. What verbal statement should accompany the price information?

A reference price is a price with which other prices are compared.

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 An external reference price is a price presented by a marketer for the consumer

to use to compare with the current price.

 An internal reference price is a price or price range that a consumer retrieves

from memory to compare with a price in the market.

Outlet Location and Size - Location and size play an important role in store choice.

 All else equal, consumers generally select the closest store.

 Outlet size is also important. Generally, customers prefer larger outlets over
smaller outlets.

 The retail attraction model, or the retail gravitation model, is used to calculate
the level of store attraction based on store size and distance from the consumer.

B. Consumer Characteristics and Outlet Choice

The purchase of products involves the risk that they may not perform as expected; such failure
may result in a high

Social cost • e.g., a hairstyle that is not appreciated by one’s peers

Financial cost • e.g., an expensive pair of shoes that become too

uncomfortable to wear
Time cost • e.g., a television repair that required the set to be taken
to the shop, left, and then picked up later
Effort cost • e.g., a computer jump drive that is loaded with several
hours of work before it fails
Physical cost • e.g., a new medicine that produced a harmful side
effect

The perception of these risks differs among consumers, depending in part on their past
experiences and lifestyles.

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For this reason perceived risk is considered a consumer characteristic as well as a product
characteristic.

The Economic and Social Risk of Various Types of Products

Shopping Orientation -A Shopping orientation is a shopping style that puts particular emphasis
on certain activities or shopping motivations.

A recent study used projective techniques (in this case, thinking about an animal) to ascertain the
ways college students approach shopping.

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