McGraw-Hill/IrwinRetailing Management, 7/eCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 4

Customer Buying Behavior

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The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

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Questions

■ How do customers decide which retailer to go to and what merchandise to buy?

■ What social and personal factors affect customer purchase decisions?

■ How can retailers get customers to visit their stores more frequently, and buy more merchandise during each visit?

■ Why and how do retailers group customers into market segments?

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Eva Carlyn, a student at the University of Washing, is beginning to interview for jobs. For the first interviews on campus, Eva planned to wear the blue suit her parents bought her three years ago. But after looking at her suit, she realizes that it’s not stylish, and it shows signs of wear. She wants to make a strong first impression during her interviews, so she decides to buy a new suit.

Illustration of Buying Process

© Digital Vision

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Illustration (Continued)

Eva surfs the Internet for tips on dressing for interviews (www.collegegrad.com and www.jobsearch.about.com) and looks through catalogs to see which styles are offered. However, she decides to go to retail store to try things on, and to have the suit in time for her first interview next week. She usually shops at Abercrombie & Fitch and American Eagle Outfitter, but neither sells business suits. Before going to the mall, she goes to BrandHabit.com, a site that enables her to examine and compare the suits currently available at the mall. Armed with a list of possibilities, she goes directly to the stores that she reviewed on BrandHabit.com.

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Illustration (Continued)

She likes to shop with Britt, but Britt is in Paris for the semester. Since she values Britt’s opinion, Eva shares her shopping list with Britt on Kaboodle.com.

© Ingram Publishing/AGE Fotostock

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Illustration (Continued)

Evan wanders into Macy’s, as a salesperson approaches her in the career women’s department. After asking her what type of suit she wants and her size, the salesperson shows her three suits. Eva photographs them with her cell phone, and text messages them to Britt in Paris. Britt likes all three, so Eva tries them on again. However, after messaging Britt more photos, all three individuals decide the 2nd suit is the most appropriate for the interview.

© Bananastock/Punchstock

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Illustration (Continued)

Eva is happy with the aesthetics of the suit: its color, fit, fabric, and length. Although, she is about the costs of dry cleaning, and she realizes she’s spending more money than she had planned. Then Eva decides to buy it after another customer in the store tells her she appears very professional in the suit.

As the salesperson walks with Eva to the cash register, they pass a display of scarves. The salesperson stops, picks up a scarf, and demonstrates to her how well the scarf complements the suit. As a result, Eva also decides to buy the scarf.

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Stages in the Buying Process

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Types of Needs

■ Utilitarian Needs –satisfied when purchases accomplish a specific task. Shopping needs to be easy, and effortless like Sam’s or a grocery store.

■ Hedonic needs – satisfied when purchases accomplish a need for entertainment, emotional, and recreational experience as in department stores or specialty stores.

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Hedonic Needs that Retailers can Satisfy

■ Stimulation Ex: Background music, visual displays, scents

■ Social experience Ex: Mixed-use developments, lifestyle centers

■ Learn new trends and fashions Ex: The Body Shop – learn how can live an environmentally friendly lifestyle

■ Satisfy need for power and status Ex: Canyon Ranch – upscale health resorts

■ Self-rewards Ex: personalized makeovers

■ Adventure Treasure hunting for bargains

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Conflicting Needs

■ Ex: Eva’s hedonic needs (wearing a DKNY suit to enhance self-image) conflict with her budget, and her utilitarian need to get a job.

■ Customers make trade-offs between their conflicting needs

■ Cross shopping

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Stimulating Need Recognition

Suggestions by Sales Associates

Advertising and Direct Mail

Visual Merchandise in store

Special Events in the Store

Signage

Displays

Free food sample

Stockbyte/Punchstock Images

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Information Search

■ Amount of Information Search Depends on the value from searching versus the cost of searching

■ Factors Affecting Amount of Information Search Product Characteristics

• Complexity• Cost

Customer Characteristics • Past experience• Perceived risk• Time pressure

Market Characteristics• Number of alternative brands

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Sources of Information

ExternalConsumer reports

Advertising

Word of mouth

Internal

Past experiences

Memory

Digital Vision / Getty Images

© Dynamic Graphics/Picture Quest

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How Can Retailers Limit the Information Search?

■ Information from sales associates■ Provide an assortment of services■ Provide good assortments■ Everyday low pricing■ Credit

Royalty-Free/CORBIS

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Retailers encourage customers to spend time

■ The more time customers spend shopping, the more they will buy.

Customers who spend 40 mins in a store are more than twice as likely to buy than someone who spends 10 mins. Also, they typically buy 2x as many items.

■ Stores use food and personal service Talbots: attention of a sales associate, light snack City Furniture: Chocolate cookies Gymboree: television playing kids’ videos

■ Websites provide enjoyable experiences with technologies

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Evaluation of Alternatives

■ Multiattribute attitude model: Customers see a retailer, product, or service as a

collection of attributes or characteristics Predict a customer’s evaluation of a retailer, product,

or service based on• Its performance on relevant attributes• the importance of those attributes to the customer

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Information about Retailers Selling Groceries

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Information Used in Evaluating Retailers

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Information Needed to Use Multi-Attribute Model

■ Alternative Consumer Considering■ Characteristic/Benefits Sought in Making Store

and Merchandise Choices■ Ratings of Alternative Performance on Criteria■ Importance of Criteria to Consumer

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Information Eva Used in Buying Suit

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Information Needed to Use Multi-Attribute Model

■ Alternative retailers consumers can consider■ Characteristic/Benefits Sought in Making Store

and Merchandise Choices■ Ratings of Alternative Performance on Criteria■ Importance weights that consumers attach to

the merchandise

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Getting into the Consideration Set

■ Consideration set: the set of alternatives the customer evaluates when making a selection

■ Retailers develop programs influencing top-of-mind awareness

Get exposure on search engines like Google

Try to be the top of the page More stores in the same area

(e.g., Starbucks)

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Methods for increasing the chance of store visit after getting into the consideration set

■ Increase Performance Beliefs of Your Store■ Decrease Performance Beliefs About

Competitor■ Increase Importance Weight of Attributes on

which You Have an Advantage■ Add a New Benefit on which You Excel

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Purchasing Merchandise or Services

■ The high-rated item may not be available in the store.

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

Customers do not always purchase a brand with the highest overall evaluation.

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Converting Merchandise or Services Evaluations into Purchases

■ Measure: the number of abandoning carts in stores and at websites

■ Methods to reduce it: Don’t stock out of popular merchandise Reduce waiting times at checkout

• Digital displays offering entertainment (Disney)

• Apple stores – cell check-out Easy navigation and check-out at websites

(amazon.com) Offer liberal return policies, money back

guarantees, and refunds if same merchandise is available at lower prices from another retailer

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Postpurchase Evaluation

■ Satisfaction A post-consumption evaluation of how well a store or

product meets or exceeds customer expectations

■ Becomes part of the customer’s internal information that affects future store and product decisions

■ Builds store and brand loyalty

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Types of Purchase Decisions

■ Extended Problem Solving

-High financial or Social Risk

■ Limited Problem Solving

-Some Prior Buying Experience

■ Habitual Decision Making-Store Brand, Loyalty

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Extended Problem Solving

■ Financial risks – purchasing expensive products or services

■ Physical risks – purchases that will affect consumer’s health and safety

■ Social risks – consumers will believe product will affect how others view them

Consumers devote time and effort analyzing alternatives

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What Retailers Need to do for Customers Engaged in Extended Problem Solving

Provide a Lot of Information

-Use Salespeople rather than advertising to

communicatewith customers

Reduce the Risks

-Offer Guarantees

-Return Privileges© Royalty-Free/CORBIS

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Limited Problem Solving

■ Customers engage in this when they have had prior experience with products or services

■ Customers rely more upon personal knowledge

■ Majority of customer decisions involve limited problem solving

(c) Brand X Pictures/PunchStock

Purchase decisions process involving moderate

amount of effort and time

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■ It depends…■ If the Customer Is Coming to You, Provide a Positive

Experience and Create Loyalty Make Sure Customer is Satisfied Provide Good Service, Assortments, value Offer Rewards to Convert to Loyal Customer

■ If the Customer Goes to Your Competitor’s Store, Change Behavior

Offer More Convenient Locations, Better Service and Assortments

What do Retailers Need to do for Customers Engaged in Limited Problem Solving?

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Encouraging Impulse Buying

■ Impulse buying: one common type of limited problem solving

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

Have Salespeople Suggest Add-ons Have Complementary Merchandise

Displayed Near Product of Interest Use Signage in Aisle or Special Displays Put Merchandise Where Customers Are

Waiting

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Habitual Problem Solving

■ For purchases that aren’t important to the consumer

■ For merchandise consumers have purchased in the past

■ For consumers loyal to brands or a store

Purchase decision process involving little or no conscious effort

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Customer Loyalty

■ Brand Loyalty Committed to a Specific

Brand Reluctant to Switch to a

Different Brand May Switch Retailers to Buy

Brand

■ Store Loyalty Committed to a Specific

Retailer Reluctant to Switch Retailers

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

IT DEPENDS

■ If the customer habitually comes to you, reinforce behavior Make sure merchandise in stock Provide good service Offer rewards to loyal customer

■ If the customer goes to your competitor’s store, break the habit

Offer special promotions

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Social Factors Influencing the Buying Decision Process

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Family Influences Buying Decisions

■ Purchases are for entire family to use

■ Whole family participates in decision making process

■ Retailers work to satisfy needs of all family members

Kids in the U.S. spend over $200 billion on personal items. They directly influence the purchase of another $300 billion worth of items such as food and clothing.

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Reference Groups

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

Reference groups affect buying decisions by:■ Offering information■ Providing rewards for specific purchasing behaviors ■ Enhancing a consumer’s self-image

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Reference Groups

■ Eva…. looks to Soccer player Mia Hamm and tennis player Maria

Sharapova for the selection of athletic wear Jessica Simpson for casual fashion advice

■ Store advocates: Customers that like a store so much that they actively

share their positive experiences with friends and family

Victoria Secret Alpha Moms

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Culture

Culture is the meaning, beliefs, morals and values shared by most members of a society

Western culture: individualism

Eastern culture: collectivism

Subcultures are distinctive groups of people within a culture

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Criteria for Evaluating Market Segments

■ Actionable■ Identifiable■ Substantial■ Reachable

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Methods for Segmenting Retail Markets

Geographic Demographic

Buying situationsLifestyle

Segmenting Markets

Geo-demographic

Benefits

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Geo-demographic Segmentation“Birds of a feather Flock Together”

Latino America

Hispanic Middle Class

Boxing (+)

Dance Music (+)

Barbequing (-)

Avocados (+)

Cosmopolitan (+)

Touched By an Angel (+)

Latino America

Hispanic Middle Class

Boxing (+)

Dance Music (+)

Barbequing (-)

Avocados (+)

Cosmopolitan (+)

Touched By an Angel (+)

Town and Gown

College Town Singles

Foreign Films (+)

Dogs (-)

Sewing (-)

Coca Cola (+)

Fast Food (+)

Friends (+)

Sports Illustrated (+)

Town and Gown

College Town Singles

Foreign Films (+)

Dogs (-)

Sewing (-)

Coca Cola (+)

Fast Food (+)

Friends (+)

Sports Illustrated (+)

PRIZM (Potential Rating Index by Zip Market – Claritas (www. Claritas.com)ESRI Tapestry

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Distribution of Gray Collar Aging Couples Near Suburbs

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VALS2 American Lifestyle Segments