17-1 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin.

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PART IV: CONSUMER DECISION PROCESSPART IV: CONSUMER DECISION PROCESS

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CHAPTERCHAPTER 1717

OUTLET OUTLET SELECTION SELECTION

AND AND PURCHASEPURCHASE

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Consumer Behavior In The News…Consumer Behavior In The News…

Luxury brands and department stores – do they mix?Luxury brands and department stores – do they mix?

Department stores are struggling.Department stores are struggling.

Consumers want excitement and variety.Consumers want excitement and variety.

Brands want the right brand environment and Brands want the right brand environment and customer base.customer base.

Do you think luxury brands get that in department Do you think luxury brands get that in department stores?stores?

Source: M. Frazier, “Luxury Brands Flee Department Stores,” AdAge.com, July 26, 2005.

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Consumer Behavior In The News…Consumer Behavior In The News…

Luxury brands and department stores – do they mix?Luxury brands and department stores – do they mix?

Do you think luxury brands get that in department Do you think luxury brands get that in department stores?stores?

They don’t think so...Example: Coach They don’t think so...Example: Coach

Department store channel down 27% in 5 years! Department store channel down 27% in 5 years! Shifting to own stores because... Shifting to own stores because...

““Luxury brands [want] 360-degree control, Luxury brands [want] 360-degree control, which … is so critically important because this which … is so critically important because this consumer wants care and feeding throughout consumer wants care and feeding throughout the entire sales process.”the entire sales process.”

Source: M. Frazier, “Luxury Brands Flee Department Stores,” AdAge.com, July 26, 2005.

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Outlet Selection and ChoiceOutlet Selection and Choice

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

recognizes a problem that requires outlet selectionrecognizes a problem that requires outlet selection

engages in internal and possibly external searchengages in internal and possibly external search

evaluates the relevant alternatives, and evaluates the relevant alternatives, and

applies a decision rule to make a selectionapplies a decision rule to make a selection

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Outlet Choice Versus Product ChoiceOutlet Choice Versus Product Choice

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

2. Outlet first, brand second; or

3. Brand and outlet simultaneously

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:

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Outlet Choice Versus Product ChoiceOutlet Choice Versus Product Choice

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The Retail SceneThe Retail Scene

Retail outletRetail outlet refers to any source of products or services for consumers.

In-home shoppingIn-home shopping represents a relatively small but rapidly growing percentage of total retail sales.

Increasingly consumers see or hear descriptions of products in

catalogs, direct-mail, printtelevision or radio on the Internet

and then acquire them via mailtelephone, or computer orders

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Internet RetailingInternet Retailing

• Barriers to Internet ShoppingBarriers to Internet Shopping

• Characteristics of Online ShoppersCharacteristics of Online Shoppers

Store-based RetailingStore-based Retailing

The Internet as Part of a Multi-Channel StrategyThe Internet as Part of a Multi-Channel Strategy

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Internet retailing is a booming and increasingly competitive business:


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Forrester Research categorized products and services into three groups based on their purchase characteristics relative to Internet shopping:

Replenishment Goods

Researched Items

Convenience Items


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Online Sales by Online Sales by Categories in BillionsCategories in Billions

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Consumers shop online for reasons similar to those for Consumers shop online for reasons similar to those for shopping from catalogs:shopping from catalogs:

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Many industry experts predicted the demise of catalogs.

But catalogs and the Internet appear to be complementary.

Consumers often purchase online after receiving a catalog!


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Many barriers still exist to online purchasing, not the least of which is the lack of Internet access. However, many who are online still have never made a purchase.

A Forrester Research study found the following reasons among those who are online who have never made a purchase:

Barriers to Internet ShoppingBarriers to Internet Shopping

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Online privacy concernsOnline privacy concerns relate to consumer fears regarding how personal information about them that is gathered online might be used, including:

targeting childrentargeting children

being inundated with marketing messages, andbeing inundated with marketing messages, and

Identity theftIdentity theft

Online privacy concernsOnline privacy concerns represent a major challenge to Internet commerce, with estimated lost sales at some $24.5 billion!


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As a consequence, companies must build and sustain highly trusted online images and relationships.

This involves such factors as

having adequate privacy policies in place utilizing security verification systems (e.g., VeriSign), and handling consumer information responsibly

Just as brand name can be a surrogate quality indicator, so too can it be a surrogate for information safety and security online.


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Lack of touch or ability to physically try products prior to purchase is also a concern.

It affects product categories such as apparel where it can be difficult to simulate experience attributes such as fit.

Internet marketers are creating virtual product experiences using such techniques as 3D simulations and rich media.

MVM (My Virtual Model) is an example of this technology.


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Internet shoppers tend to have higher income and education levels than the general population, although these differences are diminishing.

Online shoppers tend to be younger and more affluent than the average Internet users.

While men and women are roughly equally split in terms of internet use, women are emerging as the stronger Internet buyer.

Characteristics of Online ShoppersCharacteristics of Online Shoppers

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Research is moving beyond simple demographics.

Trying to understand online shopping in terms of online experience and attitudes and behaviors regarding online shopping.

Example: Those who purchase online tend to have more experience online. Those online 10 + years spend 75% more than those online 2 years or less!


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The following are results of a study which identifies the following eight online shopper segments:


Shopping Lovers

Adventurous Explorers

Suspicious Learners

Business Users

Fearful Browsers

Shopping Avoiders

Technology Muddlers

Fun Seekers

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A study of Asian consumers yielded a similar set of segments and…

Online buyers tended to have more positive attitudes about, and experience with, online shopping and purchasing.

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Most sales take place in physical stores, and this will remain true for the foreseeable future.

However traditional store-based retailing is certainly vulnerable in ways that plays into the hands of in-home retailers.


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The following are the results of a Roper survey asking consumers why they don’t like shopping in stores:


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In-store shopping perceived as neither fun nor efficient by many. Retailers fighting back with store-based activates and technologies to improve the experience:


Brand stores add value by providing a Brand stores add value by providing a fun shopping environmentfun shopping environment

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Applications in Consumer BehaviorApplications in Consumer Behavior

This Wal-Mart ad shows one of the many ways store-based retailers add value for their customers – namely providing a fun shopping environment.


Courtesy Wal-Mart Stores, Inc.

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Many think of Internet retailers as distinct from store-based retailers and catalogs.

However, pure playpure play Internet retailers such as eBay and Amazon are only part of the pictures.


Priceline.com is an example of Priceline.com is an example of an exclusive Internet retaileran exclusive Internet retailer

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A multi-channel retail strategy approach is becoming increasingly essential.

This approach can take on many forms and relates to the shifts in consumer shopping patterns.

Over 70% of the top 100 online retailers in the U.S. are multi-channel retailers.

Multi-channel shoppers are consumers who browse and/or purchase in more than one channel.


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Consumers are utilizing multiple channel in complementary ways since no retailing format is optimal on all dimensions.

So, the Internet can be used to

• overcome a lack of informed salespeople or the inconvenience of researching products in-store, while

• in-store can provide “touch” and immediacy of purchasing.


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The Retail SceneThe Retail SceneThe Internet as Part of a Multi-Channel StrategyThe Internet as Part of a Multi-Channel Strategy

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Attributes Affecting Retail Outlet SelectionAttributes Affecting Retail Outlet Selection

Outlet ImageOutlet Image

Retailer BrandsRetailer Brands

Retail AdvertisingRetail Advertising

Outlet Location and SizeOutlet Location and Size

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

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Store imageStore image - perception of all the attributes associated with a retail outlet.


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


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

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 high quality at a reasonable pricereasonable price.

Retailer BrandsRetailer Brands

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


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Expenditure of Individuals Drawn to a Store by an Advertised ItemExpenditure of Individuals Drawn to a Store by an Advertised Item


Source: The Double Dividend. The Double Dividend. (New York: Newspaper Advertising Bureau Inc., February 1977.

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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, service, selection, or affective benefitsaffective benefits.

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


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Retailers face three decisions when they consider using price advertising:


Price Advertising DecisionsPrice Advertising Decisions

1.1. How large a price discount should be used?How large a price discount should be used?

2.2. Should comparison or reference prices be used?Should comparison or reference prices be used?

3.3. What verbal statement should accompany the price What verbal statement should accompany the price information?information?

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

An external reference priceexternal reference price is a price presented by a marketer for the consumer to use to compare with the current price.

An internal reference priceinternal reference price is a price or price range that a consumer retrieves from memory to compare with a price in the market.


Price Advertising DecisionsPrice Advertising Decisions

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

Outlet Location and SizeOutlet Location and Size

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Consumer Characteristics and Outlet Consumer Characteristics and Outlet ChoiceChoice

1.1. Perceived RiskPerceived Risk

2.2. Shopping OrientationShopping Orientation

Two consumer characteristics that are particularly relevant Two consumer characteristics that are particularly relevant to store choice:to store choice:

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

Perceived RiskPerceived Risk

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

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

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

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The Economic and Social Risk of Various Types of ProductsThe Economic and Social Risk of Various Types of Products


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A Shopping orientationShopping 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.

Shopping OrientationShopping Orientation

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Shopping Orientation: Part IShopping Orientation: Part I

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Shopping Orientation: Part IIShopping Orientation: Part II

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In-Store and Online Influences on Brand In-Store and Online Influences on Brand ChoicesChoices

Often we enter a retail outlet with the intention of purchasing a particular brand but leave with a different brand or additional items.

Influences operating within the retail outlet influence our shopping patterns.

Unplanned purchasesUnplanned purchases are purchases made in a retail outlet that are different from those the consumer planned to make prior to entering that retail outlet.

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Supermarket Decisions: Two-Thirds Are Made In-StoreSupermarket Decisions: Two-Thirds Are Made In-Store

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In-Store Purchase BehaviorIn-Store Purchase Behavior

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1.1. Point-Of-Purchase MaterialsPoint-Of-Purchase Materials

2.2. Price Reductions and Promotional DealsPrice Reductions and Promotional Deals

3.3. Outlet AtmosphereOutlet Atmosphere

4.4. StockoutsStockouts

5.5. Web Site Functioning and RequirementsWeb Site Functioning and Requirements

6.6. Sales PersonnelSales Personnel

Strategies used by manufacturers and retailers to influence Strategies used by manufacturers and retailers to influence in-store and online decisions:in-store and online decisions:

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Shelf-Based Point-of-Purchase Materials Shelf-Based Point-of-Purchase Materials

Point-Of-Purchase MaterialsPoint-Of-Purchase Materials

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Price reductions and promotional deals

• coupons

• multiple-item discounts, and

• gifts

are generally accompanied by the use of some point-of-purchase materials.

Price Reductions and Promotional DealsPrice Reductions and Promotional Deals

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Sales increases in response to price reductions come from four sources

Price Reductions and Promotional DealsPrice Reductions and Promotional Deals

1. Current brand users may buy ahead of their anticipated needs (stockpiling).

2. Users of competing brand may switch to the reduced price brand.

3. Nonproduct category buyers may buy the brand because it is now a superior value to the substitute product.

4. Consumers who do not normally shop at the store may come to the store to buy the brand.

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Store atmosphereStore atmosphere is influenced by such attributes as

• lightinglighting• layoutlayout• presentation of merchandisepresentation of merchandise• fixturesfixtures• floor coverings floor coverings • colorscolors• soundssounds• odorsodors• dress and behavior of sales and service personneldress and behavior of sales and service personnel

Outlet AtmosphereOutlet Atmosphere

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AtmosphericsAtmospherics is the process managers use to manipulate the physical retail or service environment to create specific mood responses in shoppers.

Internet retailers also have online atmospheres that are determined by

• graphicsgraphics• colorscolors• layoutlayout• contentcontent• entertainment featuresentertainment features• inactivityinactivity• tonetone


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Stockouts Stockouts occur when the store is temporarily out of a particular brand. Results in…

StockoutsStockouts

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Consumers often research online then buy in traditional stores. However, losses also occur during the online shopping process.

A DoubleClick study found the following reasons for shopping cart abandonment:

Web Site Functioning and RequirementsWeb Site Functioning and Requirements

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The effectiveness of sales efforts is influenced by the interaction of

• the salesperson’s knowledge, skill, and authority• the nature of the customer’s buying task• the customer-salesperson relationship

In the online context, marketers are testing so-called “pop-up” sales clerks that interact with customers as they shop on their web site.

Sales PersonnelSales Personnel

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PurchasePurchase

Once the consumer has selected the brand and retail outlet, he/she must complete the transaction, referred to as purchasingpurchasing or rentingrenting the product.

In traditional retail environments, this was straightforward with little delay, with the exception of a major and complex purchase.

Many consumers starting to make an online purchase quit without making one for a variety of reasons.

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PurchasePurchase

Increasingly the percentage of potential purchasers who actually purchase is a major challenge for most online retailers.

Credit plays a major role in consumer purchases.

Businesses need to simplify the actual purchase process as much as possible.

17-1 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin.

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Transcript of 17-1 © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin.