The Buying Process
The steps the consumer goes through when buying a product or service.
1. Need Recognition - person recognizes an unsatisfied need
2. Search for Information - a person seeks information about how to satisfy the needs, such as what product might be useful and how they can be bought.
3. Evaluation of Alternative - Customers evaluate the alternative product/retailers and channels available for purchasing the merchandise.
4. Makes a selection - a person decides on where they want to make the purchase and/or what to purchase.
5. Makes the purchase - A person buys the product, uses the product.
6. Post Purchase Evaluation - A person decides whether the product satisfies their needs.
Buy/shop for pleasure.
* There are (6) different hedonic needs.
1. Adventure - feeling that you're going on an adventure when you shop. Most of these types of retail shops are themed.
Ex. Holister (beach house)
Bass Pro Shop (feels like a fish house)
2. Social - shopping with others for the sake of social/bonding with others.
Ex. Putting a couch in the store
Big changing rooms
Restaurant inside a store (Starbucks in B&N)
3. Gratification - shopping to feel better, reduce stress for the sake of rewarding themselves.
4. Idea Shopping - shop to get ideas
Ex. Big window displays
Product for trial use
5. Role Shopper - enjoyment from shopping for others.
Ex. Sales clerk helping to find the right/best gift.
6. Value Shopping - Get pleasure by finding the best deal. Hunt for value! Think extreme couponer (it's a game)
Ex. Bin of stuff - people think they will find a deal with things just scattered in a box. This is the same concept used at Big Lots.
People serve as master distributor, recruiting other people to become distributor of products.
Multilevel Network (think Amway)
To combat increased competition, these retailers are tailoring assortment to local market.
Retailers are changing their promo brands to focus from sales of brand building activities.
Small, full-line discount stores that offer limited merchandise assortment at low prices.
Some retailers sell merchandise here to help maintain control of their image.
Outlet store (off-price retailer)
These retailers opportunistically purchase products at low price points.
Off-price/close-out retailers or warehouse.
Name two types of retailers that typically function as wholesaler and retailer.
Home Improvement and Office-supply category specialist.
These retailers can achieve low prices because of operating efficiency caused by economies of scale and a focus on a narrow variety.
These retailers can be developed into tiers.
1st Tier - Tiffany, Sac (doing well)
2nd Tier - Macy (struggling)
3rd Tier - Sears, Kohls, JC Pennies (in the pooper)
This retailer was suppose to dominate the retail industry.
Internet Retailing (turned out to be a compliment)
(4) Ways to separate Retailers.
2. Level of Service
3. Type of inventory (variety)
4. Number of items in a particular catagory.
"I love to give something to someone that you know they wouldn't purchase for themselves." What kind of shopper is this?
"I do a lot of shopping with my mom; I feel it's an excuse to spend the day together." What kind of shopper is this?
"It brings me great excitement and sometimes suspense as to what I'm going to find." What kind of shopper is this?
Gratification or Value Shopper
"I love to go shopping. It's my biggest stress relief." What kind of shopper is this?
"If I feel like or see a style in a magazine, I might go to a store & try it out or see how it looks." What kind of shopper is this?
We classify retailers on (4) things:
1. Food Retailers
2. General Merchandise Retailer
3. Non-store Retailer
4. Service Retailer
Internal Sources (Source of finding information)
The information in a customer's memory, such as names, images, and past experiences with different stores.
The major source of internal information is the customer's past shopping experience.
External Sources (Source of finding information)
Refers to information provided by ads and other people. When people feel that their internal information is inadequate, they turn to external information sources.
What is the Multi-attribute Model?
A model based on the notion that customers see a retailer, a product, or a service as a collection of attributes or characteristics.
*The model is designed to predict a customer's evaluation of a product, service, or retailer based on:
1. It's performance on relevant attributes
2. The importance of those attributes to the customer
The MA model predicts how a customer will evaluate a retailer (or a product) based on:
1. Performance of an attribute
2. How important the attribute is to the consumer.
If you are a retailer, and you want to gather data from consumers and use the MA model, what info do you need to know?
1. Attributes that are important
2. Who are the other competitors
3. Conduct a survey that finds:
*Importance of attributes
How can a retailer improve its scores and chances of being chosen in a MA model? (4 ways)
1. Increase belief about a store/product's performance
2. Decrease performance beliefs for competing stores in the consideration set.
3. Improve performance (change people's perception)
4. Add a new benefit
What are the elements of Retail Strategy?
1. Target Market - the market segment(s) toward which the retailer plans to focus its resources and retail mix.
2. Retail Format - This includes the marketing mix (the 4 P's...Product, Price, Promotion & Place) and the Retail Mix ( the 4 p's along with Presentation and People)
3. Sustainable Competitive Advantage (SCA) - An advantage over the competition or what makes "you" better than the competition. Something that "you" do that cannot be copied or reproduced.
What is a retail market?
Is a group of consumers with similar needs (a market segment) that a group of retailers can service using a similar retail format to satisfy them.
What is a Consideration Set?
A set of alternatives the customer evaluates when making a selection or purchase.
Means that customers like and constantly buy a specific brand in a product category. They are reluctant to switch to other brands if their favorite brand is not available.
Types of Buying Decisions (3 types)
1. Extended Problem Solving - is a purchase decision process in which customers devote considerable time and effort to analyzing their alternatives.
2. Limited Problem Solving - is a purchase decision process involving a moderate amount of effort and time. Customers engage with this buying process when they have had some prior experience with the product/service and their risk is moderate.
a. Impulse Buying is a type of limited problem solving.
3. Habitual Decision Making - purchase decision process involving little or no conscious effort.
a. Brand/Store Loyalty is a habitual decision making process
What is retailing?
"Set of business activity" that "adds value" to the "goods and services" "sold to end consumers" for "their personal or family use."
What is a supply chain?
Is a set of firms that make and deliver a given set of good and services to the ultimate consumer. Raw material ----producer/manufacturer------wholesaler/distributor----retailer-----end user.
What role does a retailer play in the supply chain?
Sells products and/or services to consumers for their personal or family use. B to C business activity.
Means that a firm performs more than one set of activities in the supply chain, such as investments by retailers in wholesaling or manufacturing.
Arises when a retailer performs some distribution and manufacturing activities, such as operating warehouses or designing private-label merchandise.
Occurs when a manufacturing undertakes retailing activities, such as Ralph Lauren operating it's own retail stores.
How does a retailer create value?
Retailers charge up to 50% more for products but they can b/c they perform BIAS.
1. Break bulk
2. Hold inventory
Competition between retailers that sell similar merchandising using different formats, such as discounts and department stores.
Is a self-service food store offering groceries, meat, and produce with limited sales of no food items, such as health and beauty aids and general merchandise.
*Perishables like meat and produce account for 50% of supermarket sales and typically have higher margins than packaged goods.
*Conventional supermarkets carry 30,000 SKU, where limited assortment retailers (Save-A-Lot, Aldi) and Extreme Value Food Retailers only stock 1250 SKU.
*Supermarkets face strong competition (b/c of superior operating effeciencies)
1. Emphasizing fresh perishables
2. Targeting health-conscious and ethnic consumers
3. Providing a better in-store experience
4. Offering more private-label brands
*Offering Private Labels (ex. Meijer Brands)
1. More money for retailers, cheaper for consumers
2. Increases loyalty
3. Differentiates themselves from the competition
Fresh merchandise category, the areas around the outside walls (diary, bakery, meat, florist, deli, coffee bar).
Means purchasing from factories that pay workers a living wage, well more than the prevailing minimum, and offer other benefits, like on site medical treatment.
The fastest growing retail category, are large stores (150,000 - 220,000 square feet) that combine a supermarket with a full-line discount store (Wal-Mart)
*Offers broad assortments of grocery and general merchandise products under one roof, supercenters provide a one-stop experience.
*General merchandise (non-food) items are often purchased on impulse when customers' primary reason for coming to the supercenter is to buy groceries. General merchandise has higher margins, enabling the supercenters to price food items more aggressively.
*Supercenters are large and some customers find them inconvenient.
Are large (100,000 - 300,000 sg. ft) combination food (60-70%) and general merchandise (30-40%) stores. Hypermarkets typically stock fewer SKU than supercenters (between 40,000 - 60,000 items) ranging from groceries, hardware, and sport equipment to furniture and appliances to computer/electronics.
*Hypermarkets are not common in the US, more prevelant in Europe.
Are retailers that offer a limited and irregular assortment of food and general merchandise with little service at low prices for ultimate consumers and small businesses. (Costco, Sam's Club)
*Warehouse Clubs are large (100,000 - 150,000 sq. ft) and located in low-rent districts.
*They have simple interiors and concrete floors
*Aisles are wide so fork-lifts can pick up pallets of merchandise and arrange them on the selling floor.
*Little service is offered.
*Warehouse can offer lower prices b/c they use low-cost locations, inexpensive store design, and little customer service, they keep inventory holding cost low by carrying a limited assortment of fast selling items.
*They buy opportunistically
Provide a limited variety and assortment of merchandise at a convenient location in (2000-3000 sq. ft.) stores with speedy checkout.
*Convenient stores enable customers to make purchases quickly, without having to search through a large store and wait in long checkout lines.
*Over 1/2 of the items bought are consumed within 30 minutes of purchase.
*Due to their small size and high sales, convenience stores get daily deliveries.
*Convenient stores offers limited assortment/variety and charge higher prices. Milk, eggs, and bread once represented most of their sales, but not the majority of sales come from gas/cigarettes.
*To offset competition, they are placing their stores in key/convenient locations and are offering fresh foods.
Are retailers that carry a broad variety and deep assortment, offer customer services, and organize their stores into distinct departments for displaying merchandise.
*Traditionally, department stores attracted customers by offering a pleasing ambience, attentive service, and a wide variety of merchandise under one roof.
*Department stores often resembles a collection of specialty shops.
*They can be categorized into 3 tiers.
*to offset eroding market shares, departments stores are:
1. Attempting to increase exclusive merchandise
2. Undertaking marketing campaigns to develop strong images for their store and brand
3. Expanding their online presence.
Full-Line Discount Store
Are retailers that offer a broad variety of merchandise, limited service, and low prices.
*Discount stores offer both private labels and national brands (usually less fashionable except Target)
*Wal-Mart, K-Mart and Target are examples
*Wal-Mart accounts for 66% of full-line discount stores sales. Wal-Mart has begun converting their full-line stores into Supercenters. They are doing this because of intense competition from Category Specialists.
Concentrate on a limited number of complementary merchandise categories and provide a high level of service in relatively small stores.
*Offers deep but narrow assortments but offers sales associate expertise.
*Ex. Victoria's Secret, Hollisters, Hot Topic, American Eagle
General Merchandise Retailers
1. Department Stores
2. Full-line Discount Stores
3. Specialty Stores
5. Category Specialist
6. Extreme Value Retailer
7. Off-Price Retailers
1. Online Retailing
2. Catalog & Direct-Mail Retailers
3. Direct Selling
4. Television Home Shopping
5. Vending Merchandise
Are specialty stores that concentrate on health and personal grooming merchandise.
*pharmaceuticals represent 50% of the drugstores sales and an even greater % of the profits.
*Walgreens, CVS annd Rite Aid are the three largest drugstore chains that account for about 66% of US drugstores.
*Drugstores are facing fierce competition from pharmacies in discount stores and supermarkets, as well as prescription mail-order retailers. In response, major drugstore chains are building large buildings that offer wider assortment/variety and are installing "drive-thru" for their pharmacies.
Are big box discount stores that offer a narrow but deep assortment of merchandise.
*Most category specialist use self-service approach, but they offer assistance to customers in some areas of the store.
*By offering a complete assortment in a category at low prices, category specialist can "kill" a category of merchandise for other retailers and thus are called category killers.
*One of the largest category specialist are home improvement centers.
Extreme Value Retailers
Are small, full-line discount stores that offer a limited merchandise assortment at very low prices. (Family Dollar & Dollar General)
*Like limited assortment food retailers, EVR reduce costs and maintain low prices by offering a limited assortment (reduced inventory) and operate in low-rent locations.
*Target low-income consumers, whose shopping behaviors differ from typical discount stores or warehouse clubs.
*These retailers can appeal to the "Value Shopper" who find pleasure finding a good deal.
Off-Price Retailers (Close-Out Retailers)
Also known as Close-out retailers offer an inconsistent assortment of brand name merchandise at low prices. (TJ Maxx, Marshalls, Burlington Coat Factory, Big Lots).
*Sell brand names 20-60% cheaper than department store prices.
*Buys their products opportunistically (buying close-outs and irregulars)
Other Off-Price Retailers:
1. Outlet Stores - retailers owned by department/specialty stores
2. Factory Outlet - owned by manufacturers.
Electronic Retailers (On-line Retailers)
Is a retail format in which the retailers communicate with customers and offer products/services for sales over the Internet.
*Was suppose to replace brick-n-motor & catalog retailers but it didn't. It has been a tool to complement their stores and catalog offerings which grows their revenues, and provide more value for their customers.
Examples - Amazon, eBay.
Retailer's Role in a Supply Chain
A retailer is a business that sells products and/or services to consumers for their personal or family use. Retailers are the final business in a supply chain that links manufacturers to consumers.
Structure of Retailing & Supply Chains Around the World
United States - U.S supply chain systems has the greatest retail density & the greatest concentration of large retail firms.
Chinese & India - These two countries supply chain systems are characterized by small stores operated by relatively small firms and large independent wholesale industries.
*To make daily deliveries of these small retailers efficient, the product often passes through several levels of distributors.
*Transportation & communications systems are not as developed as Western countries.
Europe - There supply chain system falls b/t USA and Chinese/India on the efficiency scale.
*Like the US, Northern Europe has similar retailing like the United States, with high concentration levels (products provided by 5 or more firms)
*Southern Europe retailing is more fragmented across all sectors.
Some factors that created differences in supply chain in all these countries include:
1. Social and Political Objectives
3. Market Size
Is the number of different items in a merchandise category.
Assortment is often referred to as the depth of merchandise.
Is the number of merchandise categories a retailer offers.
Variety is often referred to as the breadth of merchandise carried by a retailer.
How do we categorize a retailer? (4 ways)
1. Food Retailers
2. General Merchandise Retailers
3. Non-store Retailers
4. Service Retailing
Types of Ownership
1. Independent, Single-Store Establishment (think mom and pop shop)
2. Corporate Retail Chains
Why marketers study consumer behavior?
1. Attract you to the store
2. Buy, buy, buy!!!
3. Satisfying purchasing experience
4. Stay in the store as long as possible
5. Locate the item easily
Buying Process Decision
1. Recognize need/problem
2. Research & info search
3. Evaluate alternatives (evoked and consideration set)
4. Purchase or not purchase
5. Post purchase evaluation
Shop for pleasure (entertainment, emotional, recreational)
Type of Hedonic Needs:
4. Idea Shopping
5. Role Shopping
6. Value shopping
Feeling that you're going on an adventure when you shop. (most shop/retails are themed to please an adventure shopper)
ex. Hollister (beach house)
Bass Pro Shop (outdoor atmosphere/theme)
Cracker Barrell (feels like a old style western restaurant)
Shopping with others for the sake of social or bonding.
1. Put a couch in the store
2. Internet - share link with friends
3. Big changing rooms
4. restaurant inside a store
5. Shopping malls - shopping together
6. Wider Aisle
Shopping to feel better, reduce stress for the sake of rewarding themselves.
Promotion (like the Bookit at Pizza Hut)
Get pleasure for finding the best deal for value. Think extreme couponer (it becomes a game)
1. Off-Price Retailer - purposely make their store a mess (Big Lots)
2. Bin of stuff- People like to dig through stuff (Victoria Secrets)
Cross-Shopper (conflicting needs)
The pattern of buying both premium and low-priced merchandise or patronizing both expensive, status-oriented and price-oriented retailers/products.
Sources of Information (information search)
1. Internal Search - information from a customers memory
2. External Search - information provided by ads and other people
Types of Buying Decisions
1. Extended Problem Solving
2. Limited Problem Solving (impulse buying)
3. Habitual Problem Solving (brand/store loyalty)
Extended Problem Solving
Is a purchase decision process in which customers devote considerable time and effort to analyzing their alternatives.
Limited Problem Solving
Is a purchase decision process involving a moderate amount of effort and time. Customers engage in this type of buying process when they have had some prior experience with the product/service and their risk is moderate.
Impulse Buying - is a common limited problem solving method which is an unplanned purchase.
Habitual Decision Making
Is a purchase decision process involving little or no conscious effort.
Brand Loyalty - is a habitual decision making process due to customers loyalty to a product/service.
What is a multi-attribute model
A model that summarizes how customers use information that they have and collect about alternative products, evaluate the alternatives, and select one that best satisfy their needs.
The model predicts a customers evaluation of a product, service, or retailer based on:
1. Performance on relevant attributes
2. the importance of those attributes to the customers
What does the MA model assume?
That consumers view retailers as a collection of attributes or characteristics.
What is the point/benefit of the MA model?
1. Predicts who a consumer would choose b/t alternative retailers
2. Gives us info on what would improve our (business) chance of being picked later.
The MA model predicts how a customer will evaluate a retailer (or product) based on:
1. Performance on attribute
2. Importance of the attribute to the customer
If a retailer wants to gather data from consumers and use the MA model, what info do they need to know?
1. Attributes that are important
2. Who are the "other" competitors
3. Perform the survey based on performance beliefs & importance of attributes
How can a retailer improve its MA model score and it chance of being chosen?
1. Increase belief about the store's performance
2. Decrease performance beliefs for competing stores in the consideration set
3. Improve performance (change people's perception)
4. Add a new benefit
What are the (3) elements of Retail Strategy (big part of the course)
1. Target Market - the market segment(s) toward which the retailers plans to focus its resources and retail mix. This is the group of consumers you are trying to reach.
2. Retail Format - This includes:
a. Marketing Mix (4 p's) - promotion, price, place, product
b. Retail Mix (6 p's) - marketing mix plus presentation and people
3. Sustainable Competitive Advantage (SCA)
a. it's an advantage over the competition
b. something that cannot be copied by competitors
What is a retail market?
Includes buyer and sellers. It is a group of consumers with similar needs and serviced by retailers with similar retail format to meet those needs.
Ways for retailers to develop SCA (7 ways)
1. Customer Loyalty
3. Human Resource Management
4. Distribution and Information System
5. Unique Merchandise
6. Vendor Relations
7. Customer Service
Describe Customer Loyalty (SCA)
1. Repeat purchasing
2. Emotional attachment
3. Fortitude - reluctant to to anywhere else
Retailers can build loyalty by:
1. Build a brand which is a representation of them self or personality. This helps to differentiate and help people identify it. It makes it easier for people to get emotionally attached.
2. Positioning - This is the image you portray in comparison to the competition. This requires the marketing department to design and implement a retail mix to create an IMAGE of the retailer in the customers' mind RELATIVE to the competition.
3. Loyalty Programs (includes two roles)
a. Pricing Incentive - to encourage repeat purchasing
b. Data Warehouse - using the data to better suit the needs of their customers. Provides a true source of emotional attachment. (most important part of loyalty program)
Human Resource Management (SCA)
Has the ATMR concept (Attract, Train, Motivate, and Retain)
1. Why is HRM a SCA? - skilled employees are a critical asset for the success of the company.
2. What does it include? - People who love their jobs, they will treat their customers well (customer service)
Location is not easily duplicated. This is the number one factor where people choose to shop.
Distribution & Information System (SCA)
It's all about efficiency to lower cost, which is passed on the consumers (think Wal-Mart)
Unique Merchandise (SCA)
Two ways to carry Unique Merchandise:
1. Private label brands
2. Exclusive Product (Target's Mossimo)
Vendor Relations (SCA)
Like HR/Customers this takes a long time to develop. Requires trust and commitment.
How does this lead to SCA? - Gets exclusive right to carry a product. Get product at a lower price. Fast Shipping.
Customer Service (SCA)
The most difficult to achieve because employees are inconsistent by nature. Building relationship w/ your customer requires building relationship with your employees which will pass the buck with their service.
Planned vs. Unplanned in Retailing Locations
Planned - These retail locations are determined by someone else. Think how and where they place their retailers. There are more restrictions, placed by competition, usually have pedestrian traffic.
Unplanned - Usually not leased, owned/regulated by one person (the owner), usually at a free-standing location, vehicular traffic.