CH-3-4 Multichannel Retailing – Retailing Management : Book Guide

This Document Contains Chapters 3 to 4 CHAPTER 3 MULTICHANNEL RETAILING ANNOTATED OUTLINE INSTRUCTOR NOTES I. Retail Channels for Interacting with Customers Retailers are categorized by their offering (food, general merchandise or services) and then by the channel(s) they use to reach their customers whether store- or nonstore-based (electronic, mobile, catalog/direct mail, direct selling, TV home shopping, vending machine, etc.). A retail channel is the way a retailer sells and delivers merchandise and services to its stores. Today, most retail firms are using more than one channel to reach their customers. A multichannel retailer is a retailer that sells merchandise and/or services through more than one channel. By using a combination of channels, retailers can exploit the unique benefits provided by each channel to attract and satisfy more customers. See PPT 3-3,3-4, 3-5, 3-6, 3-7 Ask students to provide examples of retailers who use multiple channels. What are the various channels used by each? Do the students giving these examples use all the channels used by the retailer? If so, how and when? A. Store Channel Stores offer a number of benefits that customers cannot get when shopping through catalogs and the Internet. These benefits include: Browsing. While many consumers surf the Internet and look through catalogs for ideas, most consumers still prefer browsing in stores. Touching and Feeling Products. Perhaps the greatest benefit offered by stores is to allow customers to use all of their senses when examining PPT 3-8 provides a summary of the unique benefits of stores, catalogs, and the Internet. PPT 3-9 covers the unique benefits provided by the store channel. Ask students if they consider any store to be their favorite for shopping. In other words, do they look forward to shopping at that store? If so, why? This Document Contains Chapters 3 to 4 products- touching, smelling, tasting, seeing, and hearing. Personal Service. Store sales associates still have the capability of providing meaningful, personalized information. Customers for durable goods, such as appliances, report that salespeople are the most useful information source. Cash and Credit Payment. Stores are the only channel that accept cash payments. Many customers prefer to pay cash because it is easy, resolves the transaction immediately, and does not result in potential interest payments. Some customers also prefer to use their credit card or debit card in person rather than electronically sending payment information via the Internet. Entertainment and Social Experience. In-store shopping can be a stimulating experience for some people, providing a break in their daily routine and enabling consumers to interact with friends. All nonstore retail formats are limited in the degree to which they can satisfy these entertainment and social needs. Immediate Gratification. Stores have the advantage of allowing customers to get the merchandise immediately after they buy it. Risk Reduction. When customers purchase merchandise in stores, the physical presence of the store assures them that any problems with the merchandise will be corrected. Ask students to describe their favorite entertainment elements of the store shopping experience. Which retailers do they believe incorporate these entertainment elements very well? Which types of merchandise do students feel require the immediate gratification factor? For which merchandise categories is immediate gratification not such a big deal? B. Catalog Channel Convenience. Catalogs, like all nonstore formats, offer the convenience of looking at merchandise and placing an See PPT 3-10 order any day at any time from almost anywhere. Information. Catalogs are no longer just a description of available products. They offer more information on how the products can enhance consumers’ lifestyles and be used effectively. Safety. Nonstore retail formats have an advantage over store-based retailers by enabling customers to review merchandise and place orders from a safe environment – their homes. C. Internet Channel In addition to the convenience and security of shopping from home or work at any time, the electronic channel has the potential for offering a greater selection of products and more personalized information about products and services. These benefits include: Broader Selection. A potential benefit of the electronic channel, compared to the other two channels, is the vast number of alternatives available to consumers. More Information to Evaluate Merchandise. An important service offered by retailers is the provision of information to help customers make better buying decisions. The retail channels differ in terms of how much information they provide and whether customers can format the information to compare different brands easily. Internet retailers have the capability of providing as much information as each customer wants, more information than they can get through store and catalog channels. The electronic channel can respond to customers’ inquiries just like a sales associate would. The depth of See PPT 3-11, 3-12 Discuss the advantages shopping on the Internet has over shopping in a store. Shopping through a catalog. Ask students about the products and purchase situations where the broader selection offered by the Internet may be particularly useful. Ask students about a new purchase context; say buying a good home theater system. If they do not know anything about the product, or how to evaluate it, where would they look for information first, the Internet or the local electronics store? What are the reasons behind this choice of channel? information available at a retailer’s Web site can provide solutions to customer problems. Also, information on the electronic channel database can be frequently updated and will always be available. The cost of adding information to an electronic channel is likely to be far less than the cost of continually training thousands of sales associates. Virtual communities, networks of people who seek information, products, and services and communicate with one another about specific issues, are examples of these problem-solving sites. These communities also help customers solve problems by providing information not readily available through other channels. Personalization. The most significant potential benefit of the Internet channel is its ability to personalize the information for each customer economically. The Internet offers the opportunity to provide “personal” service at a low cost. To improve customer service from an electronic channel, many retailers are offering live, online chats. An online chat provides customers with the opportunity to click a button anytime and have an instant messaging email or voice conversation with a customer service representative. The interactive nature of the Internet provides an opportunity for retailers to personalize their offerings for each of their customers, such as allowing customers to create a personal homepage that is tailored to that customer’s individual needs. How many students have participated in a product-related virtual community? Ask several students to describe the experience and the types of information they were able to find. Using a cookie (a small computer program that provides identifying information installed on your hard drive), the retailer can provide personalized product information, recommendations or reviews. D. Using the Internet to Improve Multichannel Shopping Experience • An electronic channel can provide valuable insights into how and why customers shop and which shopping experiences they find satisfactory. • Collecting this information as customers navigate through a store or catalog would be quite difficult; however, collecting data as customers navigate through a Web site is easy. One common phenomenon in Internet retailing is known as "abandoned shopping carts." This occurs when customers select items from the retailers site, place it in a shopping basket, but either before checkout or during checkout, decide not to buy. Consider the reasons why such customers did not complete their orders. E. Comparison of Electronic and Mobile Phone Internet Channels • Due to the rapid growth of domestic and international broadband, the use of tablets and smartphones is increasing. • An advantage of mobile channel is that customer-retailer interactions can be location sensitive. • A disadvantage is that the device’s screen is smaller, so it is hard for customers to see merchandise. PPT 3-13 Ask students how much they use their smartphone or tablet for shopping? Most Millenials use their smartphone or tablet to comparison shop or search for information and then make purchases on their computers. II. Challenges Facing Multichannel Retailers • Consumers want a seamless experience: Whether they solicit a sales associate for help, seek out an in-store kiosk, call into a call center, or log onto a website, they want to be recognized. Retailers need to be consistent with the information they provide. A. Multichannel Supply Chains and Information Systems PPT 3-14 • Most retailers don’t have distribution systems set up to accommodate orders from multiple channels. • A multichannel system requires retailers to develop new packing techniques, intermediary relationships, as well as develop new transportation strategies. B. Centralized versus Decentralized Multichannel Retailing • A critical decision facing multichannel retailers is the degree to which they should integrate the operations of the channels or have different organizations for each channel. PPT 3-14 C. Consistent Brand Image across Channels • Retailers need to provide a consistent brand image of themselves and their merchandise across all channels. PPT-3-15 Ask students to discuss a retailer that has a different online feel or image versus their in- store experience. What retailers provide a seamless experience well? D. Merchandise Assortment and Pricing • Different assortments are often appropriate for different channels. As previously mentioned, the Internet is usually able to offer a broader assortment than the in-store channel. Some channels are also more effective at generating sales for different types of merchandise. • Many customers expect prices to be the same across channels (excluding shipping prices). • Retailers with stores in multiple markets often set different prices to compete with local competition. Multichannel retailers may find it difficult to sustain this practice as PPT 3-15 Ask students how important touching and feeling merchandise is to them? Are there some product categories that they only buy online? Are there some they online buy in store? Do students use the Internet to comparison shop? How many students engage in showrooming? customers can easily check prices on the Internet. III. Shopping in the Future The seamless interface across channels that customers in the future may experience is illustrated through a scenario. See PPT 3-17 A. Shopping Experience • The scenario described illustrates the advantages of having a customer database shared by all channels and integrated systems. See PPT 3-18 IV. SUMMARY • Traditional store-based and catalog retailers are adding electronic channels and evolving into integrated, customer- centric, multi-channel retailers – an evolution driven by the increasing desire of customers to communicate with retailers any time, any place, and anywhere. • Meeting the expectations of today’s shoppers will require the development and use of common customer databases and integrated computer systems; decisions about how to use the different channels to support the retailer’s brand image; and present consistent merchandise and pricing across all channels. ANSWERS TO SELECTED “GET OUT AND DO ITS” 2. INTERNET EXERCISE Go to the Web sites of J. Crew (www.jcrew.com), JCPenney (www.jcpenney.com), and American Eagle Outfitters (www.ae.com) and shop for a pair of khaki pants. Evaluate your shopping experience at each site. Compare and contrast the sites and your experiences on the basis of characteristics you think are important to consumers. Students should consider the six reasons consumers like to purchase online: Convenience – no traffic, parking or crowds, available, 24/7, no geographical constraints. Cost – same price or cheaper online, many offer free shipping with a set dollar purchase, also save on time, hurried shopper (temporal cost). People are looking for bargains. Choice – numerous web sites to choose from, this format allows for easy comparison- shopping for price and features. Information on product availability. Customization – can find one-of-a-kind items and it offers one-to-one customized marketing. This format makes it economically feasible to personalize the information for each customer. Communication – 2-way interactive communication, consumers can send and receive information according to expressed preferences, the electronic channel offers the opportunity to help customers solve problems. Control – over the purchase decision process, a more informed customer because this format allows retailers to provide as much information as consumers want. Students should compare price, merchandise, design, brand image, etc. between the bricks and mortar location and the web site. 3. INTERNET EXERCISE Assume that you are getting married and planning your wedding. Compare and contrast the usefulness of www.theknot.com and www.weddingchannel.com for planning your wedding. What features of the sites do you like and dislike? Indicate the specific services offered by these sites that you would use. Engaged couples can plan for their ceremony, reception and honeymoon online with these sites. They can learn what other couples did for their weddings. Couples can register for gifts, set a budget, pick a venue and select vendors (caterers, florists, photographers, etc.) all in one convenient place. They can also easily share their plans with relatives and friends. Students should review what features they like and dislike of each site and which one they would be more likely to use based on the services provided. 4. INTERNET AND SHOPPING EXERCISE Pick a merchandise category like microwave ovens, power drills, digital cameras, blenders, or coffee makers. Compare a retailer’s offering in its local store and its Internet site. What are the differences in the assortments offered through its store and Internet channel? Are the prices the same or different? What has the retailer done to exploit the relationship between the channels? Students will find that some retailers have a consistent pricing strategy and merchandise selection in both channels and other do not. Reasons for the differences could include space for inventory, sales promotions, shipping charges, etc. 5. INTERNET AND SHOPPING EXPERIENCE Access the websites of Home Depot and Macy’s using your mobile phone and computer. What are the differences in the ease of navigation when looking at the presentation of merchandising using the two methods of accessing the websites. Students will find that these retailers have mobile sites that have less information (including videos, pictures, etc) to facilitate easier downloading and information search. The navigation will likely be easier on the mobile site because there is less to navigate. In addition, the merchandise presentation will be more streamlined on the mobile site. Students will probably be able to find more product information accessing the traditional website. ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. Why are store-based retailers aggressively pursuing sales through an electronic channel? Stores have realized several distinct benefits of an electronic channel that overcome their traditional limitations. First, an electronic channel enables stores to expand nationally and globally at a relatively low cost. Consider, for example a regional store with locations in 4 states in the Western U.S. This store can service customers in other parts of the country through an electronic channel. Even if the cost of setting up a fully functional state-of-the-art website may be high, the costs of locating several stores in each of the other 46 states would likely be prohibitively higher. Second, an electronic channel enables stores to gather more information about their customers, their preferences and shopping habits. In a physical store format, stores gain some limited information on the purchases made by customers only when the customers use a credit card for shopping. But the information systems used in electronic channels can track customer visits, monitor their movements through the website, and help create customer data that can be used for providing personalized attention as well as better service and merchandise. Third, by offering an additional electronic format, stores can now provide more options to customers who, depending on the product category or purchase occasion, may prefer such electronic channels as well from time-to-time. Thus, by giving alternatives to store formats to customers, stores have a better chance of retaining their customers and increasing their share of wallet. Finally, using their superior retailing expertise and well-known images, stores using an electronic format find themselves in a competitively advantageous position as compared to Internet-only retailers. The costs of acquiring customers are lower for established store than for the relatively unknown Internet retailers and may contribute to enhanced profitability. 2. From a customer's perspective, what are the benefits and limitations of stores? Catalogs? Retail web sites? Stores allow customers the benefits of a high sensory experience when browsing and shopping. Customers can touch and feel products and seek information from qualified sales associates before purchase. Moreover, they can pay in cash and thus avoid both the need to give out personal information and the high interest rates charged by credit card companies. Customers can obtain immediate gratification in that they can take home the product immediately after purchase. Customers feel comfortable with the quality and service (including the possibility of post-sales returns) when they are buying from known and reputed stores. Returning a product is easier to a store compared to other formats. However, customers are constrained by the limited choices among the merchandise assortment available at the store. Customers also have to spend considerable time and effort in comparative shopping to ensure that they have obtained the best quality, price and/or value. Also, customers often go through the added inconvenience of picking the merchandise themselves and waiting at long checkout lines. Catalogs allow customers the convenience of anytime, any place shopping. Consumer and credit information is better protected when shopping through a catalog. Also, many catalogs provide items that are not available in stores. Catalogs are particularly convenient when the product category selection is limited in local stores. For example, customers living in more rural areas may find catalog shopping to be a very convenient alternative. Since the customer does not have to travel to unknown and unsafe areas to make a purchase, catalogs provide a safer alternative as compared to physical stores. However, catalogs provide very little pre-sales information that the customer may desire about the product. While some of this information may be obtained over the phone, in most cases, the customer may only encounter an order taker with limited knowledge at the other end of the phone line. Customers can see better pictures than over the computer screen, but sometimes critical information may not be available. Returns are cumbersome, since the customer would have to repackage the product and may have to drop it off at the post or UPS delivery location. Moreover, catalogs provide limited assortment. The Internet offers the convenience of 24/7retailing. Customers can order anytime and can easily comparison shop for products, brands, and prices. Customers are exposed to a very wide assortment of products and brands and can make choices not only across products and brands but also across the retailers who stock them. There is greater personalization which benefits customers in selecting products and making purchase decisions. Detailed information, even on new product categories, can be obtained more easily. However, the consumer may be wary of unknown retailers over the Internet, fearing that the order may not be fulfilled or that the delivery promises may not be kept or the product quality may not be as advertised. Also, customers find their risks to be high, especially when they have to provide personal and credit card information over the Internet. Consumers may find that less pre-sales information is available for products that require touching-and-feeling before purchase. Also, the costs of making a bad decision are high, especially since Internet retailers vary in terms of their return policies (some charging a hefty restocking fee). 4. Why are the internet and catalog channels so popular for gift giving? Buying gifts from electronic retailers and catalogs offers the benefit of saving customers the time and effort of packaging and sending the gift. Also, if the receiver doesn’t like the gift, they can easily return it. Returning merchandise to a brick and mortar store is often more challenging and catalog and internet retailers help facilitate the return process. 5. Should a multi-channel retailer offer the same assortment of merchandise for sale, at the same price, on its websites and in its stores? Why or why not? Customers are likely to expect pricing consistency across all of the retailer’s channels. In general, a multichannel retailer should attempt to offer the same assortment of merchandise, at the same prices, across all channels. By ensuring parity between the store, catalog, and/or web site, the retailer sends a uniform message about its quality, prices and reputation to the consumer. However, significant operating, competitive and regulatory considerations may contribute to differences in merchandise and prices in a retailer's store as compared to its website. First, in terms of operating considerations, some retailers, manufacturers and service providers may find lower costs of operating and making a sale through the web site. These lower costs can be passed on to customers in terms of lower prices. For example, most airline firms now prefer customers to browse and buy tickets from their web site due to cost and efficiency considerations and therefore alert customers to the possibility of lower prices on their web site through a recording as soon as the customer calls the airline's reservation phone number. In terms of merchandise, retailers may find that bulky items requiring tremendous handling and packaging and incurring high shipping costs are not appropriate for selling over the Internet. For example, it may be difficult to buy bulky furniture and home improvement items over the Internet, especially when the retailer can not make home delivery or drop ship the product. Second, retailers may charge different prices in specific physical locations to match or better the prices charged by local competitors. Third, sales tax regulations may force retailers to collect sales tax as well shipping and handling charges from customers who are from the states in which the retailer has a physical presence. Thus, customers from these states would be charged higher delivered prices through the Internet since they pay both the sales tax and shipping charges, while customers visiting the physical store would pay only the sales tax. 6. Which of the following categories of merchandise do you think could be sold most successfully through an Internet channel: jewelry, TV sets, computer software, high- fashion apparel, pharmaceuticals, health care products such as toothpaste, shampoo, and cold remedies? Why? Lower end costume jewelry can and is sold effectively by nonstore retailers. It is because this merchandise can be presented well and accurately in a catalog and on television, or even over the Internet. Television sets could probably not be sold effectively simply because seeing is believing. Without actually seeing the picture quality on any given television it would be prohibitively difficult for most people to consider purchasing one without first seeing it in the store. Perhaps a nonstore retailer could be successful selling televisions if they could acquire first quality popular models in sizable quantities. Then, if enough people find out about the retailer, customers might consider purchasing televisions from them after first seeing the televisions in the store. Computer software could be sold well over the Internet as many software applications just require downloads, making the Internet the easiest place for purchase. However, if a consumer has a concern or question about a particular type of software, it is probably best to visit a store and seek expertise. High fashion apparel would probably not sell well through nonstore retailers. The fit, feel, and detail of high fashion merchandise would not come across without the customer actually seeing, feeling, and trying it on in a store. Commodity apparel merchandise, however, can and does sell well through nonstore retailers. Pharmaceuticals have experienced higher than average sales growth through nonstore retailers recently. It is however, difficult to determine what the ultimate nonstore retailer sales potential will be for pharmaceuticals. The population is getting older, thereby increasing the demand for many pharmaceutical products. But many pharmaceutical products require a prescription. At the moment, the practices of some Internet retailers of prescription pharmaceuticals are being called into question because in some cases it is too easy for patients to get prescriptions from a physician to be filled on line. Health care products such as toothpaste, shampoo, vitamins and other staples might sell well through nonstore retailers. Some Internet retailers are currently using these products as loss leaders and to encourage customer loyalty. Unfortunately, these retailers cannot base their fortunes on the sale of these products due to low margins and relatively high shipping costs. Other health care products, such as cold remedies would probably not sell well through nonstore retailers in the long term because they are generally purchased as needed and consumed almost immediately after purchase. For example, if someone catches a cold, they need to remedy the cold as soon as they catch it. They will not have the time to wait for the medicine to be delivered. 7. Assume you are interested in investing in a startup Internet retailer that targets people who enjoy outdoor recreation such as hiking, rock climbing, and kayaking. What merchandise and information would you offer on the site? What type of an entity do you think would be most effective in running the site: a well known outdoors person, a magazine targeting outdoor activity, or a retailer selling outdoor merchandise such as Patagonia or REI. Why? The focus of the site, particularly if run by a retailer, is to sell outdoor equipment. The equipment therefore would be the focal point of the site and would be organized around particular activities. Each category would have detailed information on the products and how they are used. In addition, information should be available about locations for using the equipment. So, if someone were going kayaking in Colorado, there would be maps and directions for rivers for kayaking. Links to other websites, such as tourist bureaus, would also be helpful. A retailer selling outdoor merchandise would be most effective in running the site because they have the strongest incentive to provide customers with a reason to visit their site. There could be some bias in merchandise selection with the retailer. But magazines or a well known expert might introduce bias as well. 8. What are the advantages to customers of accessing the Internet through a mobile device or a computer when browsing a website? When learning special promotions? Accessing the Internet through a mobile device is convenient for customers because consumers can access their smartphone almost immediately. Mobile sites are especially helpful for learning about special promotions because retailers are able to send location sensitive promotions to customers via their smartphone. For example, retailers can determine that a customer is close by and send them a push-notification for a special offer. It is harder to gain an immediate response when sending messages through email. Retailers often use mobile sites to accommodate smaller screens and slower downloads via smartphones. Therefore, accessing the internet through a computer is often easier for searching purposes as well as interacting more with a website. 9. When you shop online for merchandise, how much time do you spend browsing versus buying? When you shop in a store for merchandise, how much time do you spend browsing versus buying? Both store and Internet channels provide ample opportunities for browsing behaviors. Students’ answers will likely vary significantly as some will indicate browsing on one of the channels, others may indicate browsing in both channels, and still others may avoid browsing behaviors altogether. Students may point out the seemingly endless opportunities for browsing the Internet in particular merchandise categories as a source of considerable browsing time spent. Students may also consider this amount of information overwhelming, making browsing online cumbersome and less pleasant than in-store browsing. Others may point out the social/entertainment advantages of browsing the local mall or shops with friends. In addition, some store shoppers may be looking for merchandise without a specific type or item in mind, preferring to stroll through a variety of types of retail stores prior to making a purchase. Chapter 3 - Segmentation Characteristics of Online Shoppers Describe the segmentation characteristics of consumers comfortable with using the Internet channel for shopping in the table below. Be prepared to discuss in class. Segmentation Bases Characteristics of Consumers Shopping Online Geographic Access to technology Gender Age Usage rate Household Income CHAPTER 4 CUSTOMER BUYING BEHAVIOR ANNOTATED OUTLINE INSTRUCTOR NOTES I. The Buying Process • An effective retail strategy satisfies customer needs better than do competitors’ strategies. Thus, understanding customer needs and buying behavior is critical for effective retail decision making. • The buying process (the steps consumers go through when buying a product or service) begins when customers recognize an unsatisfied need. The process ends when customers make a purchase, use the product, and then decide whether the product satisfies their needs during the postpurchase evaluation stage. • Retailers attempt to influence consumers as they go through the buying process to encourage them to buy the retailer’s merchandise and services. Each stage of the buying process is addressed in the following sections. • Customers may not go through the stages in the same order as presented. The amount of time spent at each stage may differ depending on the type of decision being made. PPTs 4-3 through 4-6 provide a detailed example of each stage of the buying decision process. PPT 4-7 illustrates the stages in the buying decision process both for selecting a retailer and for selecting merchandise. Ask students to describe the steps they went through to purchase high price merchandise such as a suit for job interviews, or a laptop. List the steps and relate each step to the steps in the store selection and merchandise selection process. Ask students to describe the steps they went through to purchase low price merchandise such as cereal, shampoo, etc. List the steps and compare them with the buying process for high price merchandise. A. Need Recognition • The buying process is triggered when people recognize they have an unsatisfied need. • Unsatisfied needs arise when a customer's desired level of satisfaction differs from his or her present level of satisfaction. • Visiting stores, surfing the Internet, and purchasing products are Ask students how and when they recognized the need for a product they had never purchased before. Ask them how they analyzed how important that need was to them at that time. approaches to satisfying different types of needs. 1. Types of Needs • The needs motivating customers to go shopping and purchase merchandise can be classified as utilitarian or hedonic. • Utilitarian needs are focused on accomplishing a specific task. • Hedonic needs are needs for an entertaining, emotional and recreational experience. • Successful retailers attempt to satisfy both the utilitarian and hedonic needs of their customers. For utilitarian shoppers, retailers make the shopping experience easy and effortless. For hedonic shoppers, retailers attempt to provide a more stimulating and social experience. • Some hedonic needs that retailers can satisfy include: • Stimulation. Retailers use background music, visual displays, scents, and demonstrations in stores and malls to create a carnival-like, stimulating experience for their customers. • Social Experience. Regional shopping malls in many communities are now social meeting places, especially for teenagers. • Today, mall developers are focusing on mixed-use developments to satisfy consumers’ need for social experiences. Lifestyle centers are allocating significant space to restaurants, movie theaters and outdoor entertainment while online retailers provide similar social See PPT 4-08 Ask students to provide examples of utilitarian and hedonic needs. Are utilitarian needs more important than hedonic needs? Why or why not? See PPT 4-9 Ask students to indicate what benefits they got from their last shopping trip. Do their parents seek different benefits than they seek? Relate these benefits to stimulation, social experience, learning new trends, self-reward, and status and power. experiences by enabling customers to email products to their friends. • Learning New Trends. By visiting retailers’ stores and Websites, people learn about new trends and ideas. • Status and Power. Some customers have a need for status and power that is satisfied through shopping. • Self-reward. Customers frequently purchase merchandise to reward themselves when they have accomplished something or want to dispel depression. • Adventure. Some consumers go shopping because they enjoy finding bargains, looking for sales, and finding discounts or low prices. They treat shopping as a “game” to be won. 2. Conflicting Needs • Most customers have multiple needs. Moreover, these needs often conflict. Typically customers make tradeoffs between their conflicting needs. • Because needs cannot be satisfied in one store or by one product, consumers may appear inconsistent in their shopping behavior. • The pattern of buying both premium and low-priced merchandise or patronizing expensive, status-oriented retailers and price-oriented retailers is called cross-shopping. See PPT 4-10 for examples of conflicting needs. Ask students to describe a situation in which they had conflicting needs. Ask students if they ever engage in cross- shopping. Some examples of cross-shopping for products could be: (1) buying a stereo system or a printer from a specialty store but buying the cables from a lower status retailer either at a store or through the Internet; (2) buying an expensive pair of shoes at a department store, but buying socks at a discount store; or (3) buying a mattress at a value priced retailer but buying bed sheets from a department store. B. Information Search • Once customers identify a need, they may seek information about retailers and/or products to help them satisfy the need. 1. Amount of Information Searched • In general, the amount of information sought depends on the value customers feel they'll gain from searching versus the cost of searching. • The value of the search is how it improves the customer's purchase decision. The costs of the search include both time and money. • Today, technology can dramatically reduce the cost of information search. • Factors influencing the amount of information searched for include (1) the nature and use of the product being purchased, (2) characteristics of the individual customer, and (3) aspects of the market and buying situation in which the purchase is made. • Marketplace and situational factors affecting information search include (1) the number of competing brands and retail outlets, and (2) the time pressure under which the purchase must be made. • When competition is greater and there are more alternatives to consider, the amount of information searched for may increase. The amount decreases as time pressure increases. See PPT 4-11 Give examples of purchase decisions for which consumers need a lot of information (durables, medical treatment, etc.) and purchase decisions made with limited information (nondurables). Ask students if they have searched the Internet for information about a product, brand or price. Did they feel that obtaining information from the Internet was better than if they had engaged in physical visits? Why or Why not? Which product categories do they most frequently engage in information search? 2. Sources of Information • Customers have two sources of information: internal and external. • Internal sources are information in a customer’s memory such as the names, images, and past experiences with different stores. • External sources are information provided by ads and other people. When customers feel that their internal See PPT 4-12 Ask students to indicate various sources of information they use to locate an apartment to rent. What sources can apartment owners influence? What sources do they use when trying to decide which course or instructor to take? information is inadequate, they turn to external information sources. • The Internet has had a profound impact on consumers’ ability to gather external information. Consumers can gather this technology-aided information through specialized search engines, mobile devices like cell phones, and online customer reviews. Reducing the Information Search • The retailer's objective at this stage of the buying process is to limit the customer's information search to its store or website. Each element of the retailing mix can be used to achieve this objective. • First, retailers must educate sales associates to provide information to customers. • Retailers must provide a good selection of merchandise so customers can find something to satisfy their needs within the store. • Services provided by retailers can also limit the search. • Everyday low pricing is another way retailers increase the chance that customers will buy in their store and not search for a better price elsewhere. See PPT 4-13 Ask students how retailers provide enough information so customers will not need to visit other outlets before making a purchase decision. C. Evaluation of Alternatives: The Multiattribute Model • The multiattribute attitude model provides a useful way for summarizing how customers use the information they have about alternative products, evaluate the alternatives, and select the one that best satisfies their needs. • The multiattribute attitude model is based on the notion that customers see See Ancillary Lecture # 4-1 and Ancillary Exercises 4-1 and 4-2. Have students use a multi-attribute model to make a choice between buying fashionable clothing from a catalog and from a specialty store. Then make the comparison for basic jeans. a retailer or a product as a collection of attributes or characteristics. • The model is designed to predict a customer's evaluation of a product or retailer based on (1) its performance on relevant attributes and (2) the importance of those attributes to the customer. • Retail buyers can also use the multiattribute model to evaluate merchandise and vendors. See PPT 4-15 1. Beliefs about Performance • The customer mentally processes the “objective” information about each retailer and forms an impression of the benefits each store provides. • Some benefits combine several objective characteristics. • The degree to which each retailer provides benefits is represented on a 10-point scale, where 10 means the retailer performs well in providing the benefit and 1 means poor performance. Ask students what factors they consider in making a retailer choice to purchase groceries, get a haircut, buy jeans, eat a meal, etc. 2. Importance Weights • The customer forms an overall evaluation of each retailer based on the importance he/she places on each benefit the retailer provides. • The importance a customer places on a benefit can also be represented using a 10-point rating scale, with 10 indicating that the benefit is very important and 1 indicating that the benefit is very unimportant. • The importance of a retailer’s benefits differs for each customer and may also differ for each shopping trip. In general, customers can differ on their beliefs about the retailer’s After listing the factors considered for a specific retailer choice, demonstrate how the importance weights differ across people by having students vote on what is most important in their decision. Show how weights can vary depending on the purchase situation. For example, ask students what are the most important characteristics of a restaurant when they want a quick bite between classes, when they want to take their parents to dinner during a campus visit, and when they want to impress a date? performance as well as their importance weights. 3. Evaluating Stores • Research has shown that the customer’s overall evaluation of an alternative (retailer) is closely related to the sum of the performance beliefs multiplied by the importance weights. • The multiattribute attitude model doesn't reflect customers' actual decision processes, but it does predict their evaluation of alternatives and their choice. In addition, the model provides useful information for designing a retail offering. • The same model can also be used to describe how a customer evaluates and selects merchandise in a store. • In general, customers don’t thoroughly evaluate each alternative as suggested in the multiattribute model. They simply buy merchandise that’s good enough or very good on one particular attribute. They often don’t spend the time necessary to find the very best product. See PPT 4-16 Ask students for several examples of how they determine the “good enough” level in a retailer or product choice situation. a. Getting into the Consideration Set • The retailer must make sure that it is included in the customer's consideration set. The consideration set is the set of alternatives the customer evaluates when making a selection. • To be included in the consideration set, the retailer must develop programs to increase the likelihood that customers will remember it when they’re about to go shopping. • After ensuring that it is in the consideration set, the retailer can use four methods to increase the chances See PPT 4-18 Ask students for their consideration sets for grocery purchases. What could a grocery retailer do to get into the students' consideration sets? The choice rule described in the text is a linear compensatory rule--good performance on one characteristic can overcome poor performance on other characteristics. Other choice rules involve using a cutoff--minimum acceptable performance. Ask students if they can think of a situation in which they use that it will be selected for a visit. The retailer can (1) increase the belief about its performance, (2) decrease the performance belief for competing retailers in the consideration set, (3) increase customers' importance weights, or (4) add a new benefit. cutoffs to represent minimum acceptable performance. b. Changing Performance Beliefs • The first approach involves altering customers’ beliefs about the retailer’s performance -- increasing the retailer's performance rating on a characteristic. • It is costly for a retailer to improve its performance on all benefits. Thus, a retailer should focus efforts on improving performance on benefits that are important to customers in its target market. • A change in performance belief on an important benefit results in a large change in customers’ overall evaluations. • Another approach is to try to decrease customers’ performance ratings of a competing retailer. This approach may be illegal and usually isn't very effective because customers typically don’t believe a firm’s negative comments about its competitors. Ask students to indicate when their beliefs about a retailer's performance changed. Why did the belief change? What can retailers do to change beliefs? Why is it harder to change beliefs about a competing retailer than about yourself? Use automobiles to illustrate how importance weights change over time. Horsepower and size were very important 20 years ago. Now reliability, environmental impact, and gas mileage are important. Ask students if it is easier to change performance beliefs or importance weights? Why? c. Changing Importance Weights • Altering customers' importance weights is another approach to influencing retailer choice. • A retailer would want to increase the importance customers place on benefits for which the retailer has superior performance and decrease the importance of benefits for which it has inferior performance. • Typically, changing importance weights is harder than changing Ask students to give an example of a retailer that has tried to change an importance weight on an attribute– either to make it more important because they are doing really well on that dimension or less important to customers because they are doing a poor job. performance beliefs because importance weights reflect the customers' values. d. Adding a New Benefit • Retailers might try to add a new benefit to the set of benefits that customers consider when selecting a retailer. • The approach of adding a new benefit is often effective because it’s easier to change customer evaluations of new benefits than old benefits. Ask students to think of a retailer that has offered a new benefit--a benefit that customers previously did not consider when selecting a retailer. D. Purchasing the Merchandise • Customers don't always purchase a brand or item of merchandise with the highest overall evaluation. The item offering the greatest benefits may not be available from the retailer or the customer may feel that the risks outweigh the potential benefits. • One measure of retailer’s success at converting positive evaluations to purchase is the number of real or virtual abandoned shopping carts in the retailer’s store or on its Web site. • Retailers can reduce the number of abandoned carts in several ways including: making it easier to purchase merchandise, reducing actual or perceived waiting time to purchase, and reducing perceived risks of the purchase through liberal return and refund policies. See PPT 4-19 Ask students to describe a situation in which they have abandoned a shopping cart online or in a store. What led to this choice? What could the retailer have done to prevent the abandoned cart in each instance? E. Post-purchase Evaluation • The buying process does not end when a customer purchases a product. After making a purchase, the customer consumes or uses the product and then evaluates the experience to determine See PPT 4-20 Ask students to describe a situation in which they were dissatisfied after visiting a retailer. What could the retailer have done to satisfy them? Ask students to describe a satisfying whether it was satisfactory or unsatisfactory. • Satisfaction is a post-consumption evaluation of how well a retailer or product meets or exceeds customer expectations. • The post-purchase evaluation becomes part of the customer’s internal information that affects future retailer and product decisions. • Consistently high levels of satisfaction build store and brand loyalty – important sources of competitive advantage for retailers. experience. What did the retailer do to create this satisfying experience? II. Types Of Buying Decisions • Three types of customer decision- making processes are extended problem solving, limited problem solving and habitual decision making. Ask students how they went about collecting information, deciding on purchase and making the purchase once they realized that they needed any of the following: (1) new music for their MP3 player (2) jeans (3) sneakers (4) laptop (5) apartment to rent. If various product categories are used to generate discussion, the instructor may wish to use one side of the blackboard to list the comments generated about each product purchase decision. Later, as the lecture proceeds, different types of problem solving, different types of information search and evaluation, different influences on purchase, and different purchase contexts and post- purchase satisfactions could be elaborated for each of the products on which a discussion was generated at the outset. See PPT 4-21 for a review of the types of customer decision-making processes. A. Extended Problem Solving • Extended problem solving is a purchase decision process in which customers devote considerable time and effort to analyzing alternatives. Customers typically engage in See PPT 4-22 Ask students to provide an example of when they engaged in extended problem solving. When did they evaluate several retailers? extended problem solving when the purchase decision involves a lot of risk and uncertainty. • There are many types of risks, which include financial risk, physical risks, or social risks. • Consumers engage in extended problem solving when they are making buying decisions to satisfy an important need or when they have little knowledge about the product or service. Why did they evaluate several? Ask students for examples of financial, physical, and social risks. B. Limited Problem Solving • 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 or service and their risk is moderate. • In these situations, customers tend to rely more on personal knowledge than on external information. They usually choose a retailer they have shopped with before and select merchandise they have bought in the past. • The majority of customer decision making involves limited problem solving. • One common type of limited problem solving is impulse buying, which is a buying decision made by customers on the spot after seeing the merchandise. • Retailers encourage impulse buying behavior by using prominent displays to attract customer attention and stimulate a purchase decision based on little analysis. See PPT 4-24 Ask students to provide an example of when they engaged in limited problem solving. REFACT: Seventy percent of all supermarket purchases are unplanned, impulse purchases. By a show of hands, ask the class who shops with a "list" and who does not. Then ask each group about their purchases, impulse or planned. See PPT 4-26 C. Habitual Decision Making • Habitual decision making is a purchase decision process involving little or no conscious effort. This decision process is used when decisions aren’t very important to customers and involve familiar merchandise they have bought in the past. • Brand loyalty and store loyalty are examples of habitual decision making. Brand loyalty occurs when customers like and consistently buy a specific brand in a product category. • Store loyalty means that customers like and habitually visit the same store to purchase a type of merchandise. See PPT 4-27 Ask students to provide an example of when they engaged in habitual decision-making (you might focus on the store choice decision, not the merchandise selection decision). Have students describe a situation when they switched from habitual decision making to limited or extended problem solving. Why did they switch? What can retailers do to get students who are not presently patronizing to do so? Ask students to give examples of 1 or 2 items for which they are brand loyal. Compare the selections the students identified. What are the similarities and differences? What features of the product make the individual so brand loyal? Ask students their favorite store to buy jeans. Group the students together who answered with the name of the same store. Ask what makes them so brand loyal to that specific store. Compare their answers to the alternative answers offered. Compare and contrast the similarities and differences. III. Social Factors Influencing Buying Decisions • Buying decisions are affected by the customer’s social environment – the customer’s family, reference groups, and culture. See PPT 4-30 for an overview of the factors influencing customers’ buying decisions. A. The economy The state of the national and global economy has significant effects on the way people buy. With the recent recession, consumers continue to feel a sense of uncertainty and risk. Many customers now enjoy searching and shopping for bargains. B. Family • Many purchase decisions are made for products that the entire family will consume or use. Retailers must understand how families make purchase decisions and how various family members influence these decisions. • When families make purchase decisions, they often consider the needs of all family members. In some situations, all family members may participate in the decision-making process. In others, one member of the family may assume the role of making the purchase decision. • Children play an important role in family buying decisions. • Retailers can attract consumers who shop with other family members by satisfying the needs of all family members. See PPT 4-31 Ask students to give an example of a purchase decision they made that was influenced by members of their family. One decision might be the choice of college to attend. How did the family influence the decision? If any students have children, ask them how their purchase decisions have changed since having kids. C. Reference Groups • A reference group is one or more people that a person uses as a basis of comparison for their beliefs, feelings, and behaviors. A consumer might have a number of different reference groups, although the most important reference group is the family. • These reference groups affect the buying decision process by: (1) offering information, (2) providing rewards for specific purchasing behaviors, and (3) enhancing a consumer’s self-image. • Reference groups provide information to consumers directly through See PPT 4-32 Ask students to give examples of their purchase decisions that are influenced by their reference groups. What are the different reference groups that influence their decisions? conversation or indirectly through observation. • Some reference groups influence purchase behaviors by rewarding behavior that meets with their approval. • By identifying and affiliating with reference groups, customers create, enhance, and maintain their self- image. • Retailers are particularly interested in identifying and reaching out to those in a reference group who act as store advocates and actively influence others in the group. Store advocates are consumers who like a store so much they actively share their experiences with friends and family. Does any student consider him- or herself to be an advocate for a particular retailer? Why? Which retailer? D. Culture • Culture is the meaning, beliefs, morals, and values shared by most members of a society. • As retailers expand beyond their domestic markets, they need to be sensitive to how cultural values affect customer needs and shopping behavior. • Subcultures are distinctive groups of people within a culture. Members of a subculture share some customs and norms with the overall society but also have some unique perspectives. Subcultures can be based on geography, age, ethnicity, or lifestyle. See PPT 4-33 IV. Market Segmentation • To increase their efficiency, retailers identify groups of customers (market segments) and target their offerings to meet the needs of typical customers in Ask students why retailers segment markets. What are examples of retailers who clearly appeal to a specific segment of customers? Describe the segment or segments of that segment rather than the needs of a specific customer. • A retail market segment is a group of customers whose needs are satisfied by the same retail mix because they have similar needs. • The Internet enables retailers to efficiently target individual customers and market products to them on a one- to-one basis. customers that buy Red Bull, shop at Toys R’ Us, buy hybrid cars, and eat at McDonald’s. A. Criteria for Segmenting Markets • Four criteria for evaluating whether a retail segment is a viable target market are (1) actionable, (2) identifiable, (3) substantial, and (4) reachable. See PPT 4-35 Having described the segments above, evaluate each of the segments on the criteria listed. 1. Actionable • The fundamental criteria for evaluating a retail market segment are (1) customers in the segment must have similar needs, seek similar benefits, and be satisfied by a similar retail offering, and (2) those customers’ needs are different from the needs of customers in other segments. • Actionable means that the definition of a segment must clearly indicate what the retailer should do to satisfy its needs. Ask students if this segment is actionable. Can a product or retail offering be developed that will appeal to this segment and not to other types of customers? Would you use unique advertising and media to influence this segment? 2. Identifiable • Retailers must be able to identify the customers in a target segment. • Identifiability is important because this way the retailer can determine (1) the segment’s size and (2) the consumers to whom the retailer should target its promotions. Ask students how they would identify people in this segment? Sometimes retailers do not need to specifically identify customers in their target segment. They promote their stores to everyone and interested customers select to visit the store. What are the advantages and disadvantages of using self-selection versus targeted promotions? 3. Substantial • A target segment must have enough buying power to support a unique retailing mix. 4. Reachable • Reachable means that the retailer can target promotions and other elements of the retail mix to consumers in the segment. Ask students how they would reach people in this segment to tell them about a product or retail store. Which media could they use to reach them? B. Approaches for Segmenting Markets- Geographic • Geographic segmentation groups customers based on where they live. A retail market can be segmented by countries or by areas within a country such as states, cities, and neighborhoods. • Segments based on geography are identifiable, reachable, and substantial. • However, when customers in different geographic segments have similar needs, it is inappropriate to develop unique retail offerings by geographic markets. Ask students for examples of retailers who use geographic segmentation. Discuss differences in merchandise students may expect to see at a sporting goods store in Florida versus a sporting goods store in Vermont. C. Approaches for Segmenting Markets- Demographic Segmentation. • Demographic segmentation groups consumers based on easily measured, objective characteristics such as age, gender, income, and education. • Demographic variables are the most common means to define segments because consumers in these segments can be easily identified and reached. • Demographics may not be useful for defining segments for some retailers. Examples of retailers focusing on demographic segments are Home Depot (homeowners), Limited Express (young women), McDonald's (families with young children). Ask students for other examples. D. Approaches for Segmenting Markets Geodemographic Segmentation • Geodemographic segmentation uses both geographic and demographic characteristics to classify consumers. This segmentation is based on the principle that “birds of a feather flock together.” • The most widely used tool for geodemographic segmentation is PRIZM (Potential Rating Index by Zip Market) developed by Claritas. • Geodemographic segmentation is particularly appealing to store-based retailers because customers typically patronize stores close to their neighborhood. • Retailers can use geodemographic segmentation to select locations for their stores and tailor the assortment in the stores to the preferences of the local community. Ask students if they can identify the different groups of people in their neighborhood based on demographics and behaviors. Visit the PRIZM website and type in your zip code and surrounding zip codes. Do students agree or disagree with the PRIZM segments the website identifies? E. Approaches for Segmenting Markets Lifestyle Segmentation • Lifestyle, or psychographics, refers to how people live, how they spend their time and money, what activities they pursue, and their attitudes and opinions about the world they live in. • Retailers today place more emphasis on life-styles than on demographics to define a target segment. • The most widely used lifestyle tool is the Value and Lifestyle Survey (VALS2) conducted by SRI Consulting Business Intelligence. The segments are described by two dimensions: (1) the consumers’ resources including their income, education, health, and energy level, and (2) personal orientation or what motivates them – principles, status, or actions. • Lifestyle is useful because it identifies what motivates buying behavior. On the other hand, it is difficult to identify Ask students to classify themselves, their parents, and their grandparents in terms of lifestyle segmentation. Ask students to describe the lifestyle of a couch potato? What retailers focus on this segment? What can retailers do to appeal to this segment? and access consumers in specific lifestyle segments. F. Buying Situation Segmentation • Buying behavior of customers with the same demographics or lifestyle can differ depending on their buying situation. Contrast the differences in the buying situation target segments for convenience stores and supermarkets. G. Benefit Segmentation • Another approach for defining a target segment is to group customers seeking similar benefits. In the multiattribute attitude model, customers in the same benefit segment would have a similar set of importance weights on the attributes of a store or a product. • Benefit segments are very actionable. But customers in benefit segments aren’t easily identified or reached. Relate benefit segments back to the multiattribute model. A benefit segment is composed of customers who attach a high importance weight to a specific characteristic or benefit. H. Composite Segmentation Approaches • No one approach meets all the criteria for useful customer segmentation. • Composite segmentation plans use multiple variables to identify customers in the target segment. They define target customers by benefits sought, lifestyles, and demographics. Ask students to describe different groups of women (or men) shopping for moderate to good quality leisure clothing, based on their lifestyles, demographics, and benefit sought. What retailers target each segment more so than others? V. Summary • To satisfy customer needs, retailers must thoroughly understand how customers make retailer store, Web site and purchase decisions, and the factors they consider when deciding. • This buying process of consumers is influenced by their personal beliefs, attitudes, and values and by their social environments. • To develop cost-effective retail programs, retailers group customers into segments with similar needs, characteristics and lifestyles. ANSWERS TO “GET OUT AND DO ITS” 2. GO SHOPPING Go to a supermarket and watch people selecting products to put in their shopping carts. How much time do they spend selecting products? Do some people spend more time than others? Why is this the case? Does consumer behavior vary in the store perimeter versus in the aisles? Explain your observations. Students may find a variety of shopping styles from this observational research trip. Some shoppers will have a list, some will go up and down each aisle, and others will go through the store in a more random pattern. Some consumers will shop alone and others swill shop with family members including young children. A great deal of time goes into planning the store layout. The store perimeter usually has heavy traffic with departments such as bakery, deli, meats and dairy. The dry goods aisles have the lowest margins in the store and contain canned and packaged food and nonfood items. 3. OLC EXERCISE Go to the student site of the book’s website to develop a multiattribute attitude model describing your evaluation of and decision about some relatively expensive product you bought recently, such as a car or a consumer electronics product. Open the multiattribute model exercise. List the attributes you considered in the left-hand column. List the alternatives you considered in the top row. Fill in the importance weights for each attribute in the second column (10 = very important, 1 – very unimportant); then fill in your evaluation of each product on each attribute (10 = excellent performance, 1 = poor performance). Based on your importance weights and performance beliefs, the evaluation of each product appears in the bottom row. Did you buy the product with the highest evaluation? Students should access the online learning center to find a template for the multiattribute model. They should then consider their most recent, extensive problem solving, purchase. List the attributes that were most important to you as well as the alternatives you considered. Determine how each alternative performed on each attribute. Did the students’ actual purchase differ from the result of the multiattribute model? If so, was there a particular attribute that students considered far more important? 4. INTERNET EXERCISE To better understand the segmentation classification of consumers, Strategic Business Insights has developed the VALS tool, which uses psychology to segment people according to their distinct personality traits. Go to the firm’s homepage at http://www.strategicbusinessinsights.com/vals/presurvey.shtml and take the survey to identify your VALS profile according to your values, attitudes, and lifestyle. According to the results, What is your VALS profile type? Do you agree with your consumer profile? Why or why not? How can retailers effectively use the results of this survey when planning and implementing their business strategies? “The purpose of the VALS™ survey is to identify the VALS type of the person taking the survey. That's it. To find out about a person's product ownership, media preferences, hobbies, additional demographics, or attitudes (for example, about global warming), the questions in the VALS survey integrate into larger questionnaires that ask about these topics. For example, the VALS questions integrate into MRI's nationally syndicated Survey of the American Consumer, which enables us to see the media preferences of each of the eight VALS types. The VALS questions also integrate into our own Consumer Financial Decisions' MacroMonitor survey, giving us in-depth information about how each VALS type uses, invests, and saves money.” Source : http://www.strategicbusinessinsights.com/vals/presurvey.shtml. Some students will strongly agree with their VALS profile, others will not. This is a good opportunity to discuss how retailers will use this tool to understand customers and plan business strategies in small groups. 5. INTERNET EXERCISE Retailers want to segment the market on the basis of the geographic classification of customers to select the best sites for their businesses. Go to the ESRI Business Information Solutions home page at www.esri.com, type in the zip code for your hometown or your campus, and read the results. How would a retailer, such as a local restaurant, use the information in this report when making a decision about whether to open a location in this zip code? ESRI uses geography to help governments, industry leaders, academics, and other organizations make critical and analytical decisions. The Tapestry tool classifies US neighborhoods into 65 market segments based on socioeconomic and demographic factors and then consolidates them into LifeMode and Urbanization Groups. Students should determine if they agree with these assessments or not. Retailers can use this information to determine the preferences and lifestyle characteristics of individuals in a certain area. Having this information can help a retailer determine if a certain location is populated with people from its target market. 6. INTERNET EXERCISE Go to the following Internet sites offering information about the latest fashions: New York Magazine’s The Cut at http://nymag.com/thecut/, New York Times’ Fashion & Style at www.nytimes.com/pages/fashion/index.html, and the U.K. Telegraph at fashion.telegraph.co.uk. Write a brief report describing the latest apparel fashions that are being shown by designers. Which of these fashion trends do you think will be popular with college students? Why? Students interested in fashion and apparel merchandising will really like this exercise. This is a chance to see the latest fashions and discuss where they are in the product life cycle. Responses to what will be popular with college students will vary by the trends and seasons. A great time to assign this question is during or immediately following New York City Fashion Week. http://www.mbfashionweek.com/. ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. Does the customer buying process end when a customer buys some merchandise? Explain your answer. No, the customer buying process does not end when a customer buys some merchandise. One of the most important stages of the buying process is the Post Purchase Evaluation. This stage happens after the purchase takes place. Customers consume or use the merchandise and then evaluate their experiences to determine whether it was satisfactory or unsatisfactory. The post purchase evaluation becomes part of the customer’s internal information that affects future store and product decisions. A satisfied customer may make repeat purchases, where an unsatisfactory experience can motivate customers to complain to the retailer and decide to patronize other stores. 2. Describe how service retailers, such as hotels, provide information to potential customers to answer questions about services offered, rates and other amenities. Consumers may seek information to help satisfy the need (where to stay, room rates, hotel amenities, etc.). This step could be long or short depending on the consumer’s prior knowledge and the risk involved. Consumers may consult one or more of five general sources: 1. Internal - information in a person’s memory, past experience 2. Personal – consulting other people, friends and family 3. Marketing – packaging information, sales people, advertising 4. Public – independent sources, media and consumer reports, as well as online reviews and travel sites 5. Experiential – consumer trial of the product, test drive, listen to a music CD Retailers (hotels) try to have the consumers limit their information search to just their location or web site. By anticipating questions, retailers can increase the likelihood of satisfying the consumer’s needs. Hotels use their trained staff, signs, printed literature, hotel services booklet, web site etc. 3. Considering the steps in the consumer buying process (Exhibit 4-1), describe how you (and your family) used this process to select your college/university. How many schools did you consider? How much time did you invest in this purchase decision? When you were deciding on which college to attend, what objective and subjective criteria did you use in the alternative evaluation portion of the consumer buying process? To answer this question, students need to consider the following steps in the decision making process: Need recognition—What stimulates the student to first think about going to college? What types of needs was the student attempting to satisfy by going to college? Information search—What information did the student collect about college and the different colleges? Who provided the information—the colleges through the mail, school counselors, friends, family, visits to the colleges? Evaluation of alternatives—What were the characteristics on which the students compared the various colleges? Did the student use something like a multi-attribute model to compare the strengths and weaknesses of various alternatives? Choosing a college—What were the key factors influencing the final choice and what was the final choice? Post-choice evaluation—How satisfied is the student with the choice? Would the student recommend the college to a friend? 4 In Exhibit 4-6, The Inner City Tenant is described. How should banks, restaurants, drugstores, and car dealers alter their retail mixes to meet the needs of this segment compared to the Top Rung segment? The Inner City Tenant is a younger customer from a diverse background who lives in a city and is interested in playing sports, music, and fashion. The Top Rung customer, on the other hand, is a little bit older, married, lives in the city, and is involved in public service and civic activities; this customer likely has more disposable income than the Inner City Tenant as well. Retailers, like banks, restaurants, drugstores, and car dealers, have to provide a retailing mix that appeals to the Inner City Tenant by being current, affordable, and convenient. 5. Any retailer's goal is to get customers in its store so that they can find the merchandise that they are looking for and make a purchase at this location. How could a sporting goods retailer ensure that the customer buys athletic equipment at its outlet? A sporting goods retailer can ensure that a customer buys athletic equipment in their store by helping customers decrease their information search. In general, retailers want to reduce the information search of customers when they are in the store. To do this, the retailer should first provide a good selection of merchandise so customers can find something to satisfy their needs within the store. Second, retailers should hire an educated staff to provide the needed information to customers when deciding on their equipment. Third, retailers should provide special services to reduce the decision process. This could include the availability of credit and delivery. Lastly, retailers could provide everyday low pricing to increase the chance that customers will buy in their store and not search for a better price elsewhere. 6. A family-owned used-book store across the street from a major university campus wants to identify the various segments in its market. What approaches might the store owner use to segment its market? List two potential target market segments based on this segmentation approach. Then contrast the retail mix that would be most appropriate for the two potential target segments. • Target segment defined on demographics might be: * Students (younger segment) * Faculty, Staff and Administrators (older segment) * Local residents with different demographic profiles such as gender, age, and education. • Target segments based on lifestyle might be: * Interest in outdoor recreation (travel, camping, fishing) * Interest in indoor hobbies and activities (leisure, entertainment, cooking, sewing, home repairs) * Adventuresome • Target segment based on benefits sought and usage situation might be: * Eclectic tastes in reading material * Interest in non-fiction or local authors * Textbooks vs. pleasure reading Note that the target segment determines the nature of the merchandise offered. For example, a target segment of students for used books means that the store has to get information about tastes of the current batch of students at the university, what types of books they would be looking for used versus new, and their price preferences. Also the store needs to offer services like buying back books from students. This will serve at least two purposes: (1) replenishing stock of used books, and (2) getting people back into the store. The store will be designed so that the books are well categorized according to type (textbooks, non-fiction, mysteries, etc.) and author(s). Not much personalized service needs to be provided, but the store could have facilities where the students and other customers can relax to browse the selection. 7. How does the buying decision process differ when consumers are shopping on the Internet or mobile compared with shopping in a store in terms of locations or sites visited, time spent, and brands examined? When shopping online, customers might spend more time searching for information and evaluating alternatives. It is easier to visit more websites than it is to visit multiple stores, unless customers are shopping in a mall. However, for time spent, customers might spend more time shopping in store than they do online, because they are engaged in the activity and are present in the location, whereas they might get distracted when shopping online. 8. Using the multi attribute attitude model, identify the probable choice of a local care dealer for a young, single woman and for a retired couple with limited income (See the table that follows). What can the national retail chain do to increase the chances of the retired couple patronizing its dealership? You can use the multi attribute model template found in the Online Learning Center to analyze this information. Importance Weight Performance Beliefs Characteristics Young Single Retired couple Local Gas Station National Service Chain Local Car Dealer Price 2 10 9 10 3 Time to Complete Repair 8 5 5 9 7 Reliability 2 9 2 7 10 Convenience 8 3 3 6 5 Using the multiattribute model (importance weights multiplied by price and summated over all the characteristics), we get the following overall evaluation scores for each outlet by each segment: Segment Local Gas Station National Service Chain Local Car Dealer Single Woman 86 154 122 Retired Couple 142 226 170 The probable choice of an automobile repair outlet for a single woman would be the local car dealer. The probable choice for a retired couple with limited income would be a national service chain. 9. Think of a recent purchase that you made and describe how economic and social environmental factors (e.g., reference group, family and culture) influenced your buying decision. How are retailers using social media to impact your buying decisions? Economy- based on the changes in the national and global economy, consumers have changed their buying habits. May consumers are now searching for more discounts and bargains and are placing more emphasis on products with higher quality and more value. Culture – values and behaviors in a society. Different cultures put importance on different values. Subculture – distinctive groups within a culture such as, nationality, racial, ethnic, religious Reference groups – membership groups, professional associations, and religious group. By identifying with a reference group, consumers create or maintain their self-image. Example: Outdoorsy lifestyle, L.L. Bean. Family – parents, spouse and children. Many purchases are made for products that the entire family will use. Example : vacation with or without children. All can result in different retailers and brands being selected. Students may have experience with Facebook or other social media web sites. These sites can influence consumer buying behavior depending on how much people value the information posted. Some consumers value the information as a trusted friend or expert in the field and therefore trust their opinions, reviews and recommendations when making a purchase decision. 10. Think about the merchandise sold at Office Depot, Staples and Office Max and list three to four types of merchandise that fall into extended problem solving, limited problem solving and habitual decision making for college students. Explain how the categories of merchandise would change for each type of buying decision if the customer was a medium-sized business owner? As marketers we examine the level of involvement and amount of time a consumer spends in the buying process. Depending on the significance of the purchase, consumers will be more or less involved in the purchase process with varying amounts of time and research. Extended Problem Solving – considerable time, complex, unfamiliar, and significant, less frequently purchased, considerable risk and uncertainty. Customers will spend more time and effort to collect information and thoroughly evaluate alternatives. Consumers may visit several retailers before making a purchase decision. Examples: computers, printers & office furniture. Limited Problem Solving – involves a moderate amount of effort and time. The customer may have some prior experience in buying this type of product. They may consider a new brand. If the product is unfamiliar they will gather more information. Retailers can aid customers by offering the information required. Examples: software,. electronics and storage items. Habitual/Routine Decision Making – low involvement, simple, inexpensive, familiar, buy frequently. Can lead to Brand loyalty. If the consumer need was satisfied in the past, the buyer will likely by the same brand again. Store loyalty can also be created when the consumer routinely visits the same store to purchase merchandise. Many retailers implement programs such as bonus cards and private label brands to increase store loyalty. Examples: paper, ink, file folders. A small business would likely use a more rational approach to buying with specific criteria. Individuals would consider rational and emotional criteria, The small business would also likely buy in bulk and reorder when supplies drop to a designated level. ANCILLARY LECTURES AND EXERCISES Lecture # 4-1 THE MULTIATTRIBUTE MODEL Instructors’ Note: This lecture can be used to demonstrate a model designed to predict a customer’s evaluation of a product or retailer based on their performance on several attributes and the importance of those attributes to the customer. PowerPoint slides are available to accompany this lecture. Introduction • The multiattribute model is based on the notion that customers see a retailer or a product as a collection of attributes or characteristics. • Customers collect and review information about alternative products or retailers, evaluate the alternatives, and select one that best satisfied their needs. • A multiattribute attitude model provides a useful way to look at the customer's evaluation process. • The model is designed to predict a customer's evaluation of a product or a retailer based on their performance on several attributes and the importance of those attributes to the customer. Buyers can also use the multiattribute model to evaluate merchandise and vendors. Beliefs about performances • A customer considering shopping at three retailers mentally processes the "objective' information about each of the retailers and forms an impression of the benefits the retailer provides. • His beliefs about these benefits may be a combination of several objective characteristics. For example, the convenience benefit is a combination of travel time, checkout time and check-cashing privileges. Price of the groceries and double coupons affect the perception of the economy of shopping at the stores. • The degree to which the retailer provides the benefits is represented on a 10-point scale. 10 means that the retailer performs well in providing the benefits; 1 means that the retailer performs poorly. Importance weights • A customer may develop an overall evaluation of each retailer based on the importance he/she places on each of the benefits provided by the retailers. For example, the importance a customer places on a benefit can also be represented using a 10 point rating scale, with 20 indicating that the benefit is very important and 2 indicating that the benefit is very unimportant. • Using this rating scale, the importance of the retailer benefits for a young woman and a parent with four children are shown in the accompanying exhibit, along with the performance beliefs previously discussed. Choice of Alternatives • For the young woman, the Internet grocer has the highest score, and thus the most favorable evaluation. However, the Supercenter has the highest score for the parent, who would probably buy the family's weekly groceries there. • Note that even though the multiattribute model does not reflect the customer’s actual decision process, it does predict their evaluation of alternatives and their choice • The model provides useful information for designing a retail offering. • The same model can also be used to describe how a customer evaluates and selects merchandise. This demonstrates that, generally, once customers find a product that will satisfy their needs, they will stop searching. Implications for retailers • First, the model indicates what information customers use to make their decision about which retailer to patronize. Thus, to develop a program for attracting customers, the retailer needs to do market research to collect the information listed below. 1. Getting into the consideration set The retailer must make sure that it is included in the customer's consideration set. The consideration set is the set of alternatives the customer evaluates when making a selection. To be included in the consideration set, the retailer must develop programs to increase the likelihood it will be remembered and thought about when customers are about to shop. After ensuring that it is in the consideration set, the retailer can use 4 methods to increase the chances that it will be selected for a visit. 1) Increase the belief about its retailer's performance. 2) Decrease the performance belief for competing retailers in the consideration set 3) Increase customers' importance weights or 4) Add a new benefit. 2. Changing performance beliefs The first approach involves altering customer's beliefs about the performance of the retailer--increasing the retailer's performance rating on a characteristic. For example, the supermarket would want to increase its overall rating evaluation by improving its ratings on all four benefits. The supermarket could improve its rating on economy by lowering prices and improve its rating on store environment by modernizing the store, making sure the store is clean and neat. It is very costly for a retailer to improve its performance on all benefits. Thus, a retailer typically needs to focus efforts on improving performance on benefits that are important to customers in its target market. A change in performance belief on an important benefit results in a large change in customers’ overall evaluation. Another approach is to try to decrease customers' performance ratings of a competing retailer. This approach may be illegal and usually isn't very effective because customers typically don't believe a firm’s negative comments about its competitors. 3. Changing importance weights Altering customers’ importance weights is another approach to influencing retailer choice. A retailer would want to increase the importance customers place on benefits on which the retailer has superior performance or decrease the importance on benefits on which it has inferior performance. Typically, changing importance weights is more difficult than changing performance beliefs because the importance weights reflect the customers' values. 4. Adding a new benefit The retailer might try to add a new benefit to the set of benefits that customers consider when selecting a retailer. For example, since JCPenney is a national department store, customers can purchase a gift at their local store and send it to a person in another part of the country knowing that the recipient can exchange it at their local store if desired. This approach of adding a new benefit is often effective because it's easier to change customer evaluation of new benefits than old benefits. ANCILLARY EXERCISE # 4-1: USING THE MULTIATTRIBUTE MODEL FOR CHOOSING A STORE ------------------------------------------------- Instructor’s Note: This exercise is intended to give students the opportunity to use the multiattribute Model found in the text. Instructors might want to use this lecture as a stimulus to a class discussion on the topic. ------------------------------------------------- Instructions • Pick a student who has recently made a store choice decision -- such as choosing a retailer to buy jeans, get a haircut, buy groceries, or eat a meal. • Then go through the following steps: • Have the student indicate the two or three retailers he/she considered and write these names on the top of the two columns. • Have the student indicate factors he/she considered in choosing the retailers. • Typical factors are convenience (location), price of merchandise, availability of specific items, offering credit or taking a check, service, etc. • List these benefits offered on the row in the left-hand column. • Ask the student which characteristics or benefit is the most important to him/her and give benefit a 10 in the importance weight column. • Then have the student indicate the importance of the other characteristics using a 10 point scale where 10 means very importance and 1 means not very important. • Now have the student rate each retailer on each characteristic using a ten-point scale where 10 means excellent performance and 1 means poor performance. • Now multiple the importance weights times the performance beliefs for each characteristic and calculate a total score for each retailer. • Ask the student which store he/she went to. • The student typically will have gone to the retailer with the highest score. ANCILLARY EXERCISE # 4-2 Using the multiattribute attitude model and the following information, identify the probable choice of a retail store for a young single businesswoman and for a retired couple with limited income buying a TV set. IMPORTANCE WEIGHTS PERFORMANCE BELIEFS CHARACTERISTIC YOUNG SINGLE RETIRE D COUPLE DISCOUNT STORE DEPART- MENT STORE CATEGOR Y SPECIALIS T Price 2 10 9 3 10 Services 5 8 5 17 9 Assortment 9 2 2 10 7 Shopping environment 6 2 3 8 6 young single 79 177 164 retired couple 140 122 208 The young single person would get more benefits from the department store and thus choose it over the discount store and the category specialist. The retired couple would choose the category specialist. Solution Manual for Retailing Management Michael Levy, Barton A. Weitz, Dhruv Grewal 9780078028991