4. Learning Objectives for Chapter 3:
1. Explain the importance of population
trends to the retail manager.
2. List the social trends that retail managers
should regularly monitor and describe their
impact on retailing.
3. Describe the changing economic trends and
their effect on retailing.
4. Discuss the consumer shopping/purchasing
model, including the key stages in the
shopping/purchasing process.
4-4
5. Key notes
You have all passed a course last
semester on Buyer Behavior
This topic should be easy since it covers
the key issues of BB
But we contextualize it to the retail
shopping experience and buying
behaviors
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6. Introduction
Retail Mix:
The combination of merchandise,
assortment, price, promotion, customer
service, and store layout that best serves the
segments targeted by the retailer.
Retailers need to study buyer demographics,
life style and shopping motives and
preferences in order to align their retail mix
to better meet customer needs
4-6
7. Introduction
Customer Satisfaction:
Occurs when the total shopping experience
of the customer has been met or exceeded.
This is important because it costs five
times as much to get a new customer
into your store as it does to retain a
current customer.
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8. Introduction
Customer Services:
Include the activities the retailer performs
that influence (1) the ease with which a
potential customer can shop or learn about
the store’s offering, (2) the ease with which
a transaction can be completed once the
customer attempts to make a purchase, and
(3) the customer’s satisfaction with the
purchase.
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9. Shopping experiences and customer
satisfaction
If the customer is dissatisfied with
either the product offered or the
services provided, then the customer is
less likely to choose that retailer in the
future, thus decreasing future sales.
Knowing what products to carry, as
well as determining which customer
services to offer, is a challenging
exercise for retailers as they seek ways
to improve the shopping experience.
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11. Introduction
Market Segmentation:
Is the dividing of a heterogeneous consumer
population into smaller, more homogeneous
groups based on their characteristics.
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13. Dollars & Sense
Retailers who focus on understanding a well-
defined niche and serving that market with a
differentiated offer will be more profitable
than their competitors.
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14. Note:
The chapter focuses on the US economy
and the demographics
We would need to contextualize this to
fit the local retail market of Singapore
and that of Asia
What are some of the differences in
population demographics, culture,
social structure and eventually
consumer buying behaviors?
4-14
16. Social Trends
State of
Education Marriage and
Divorce
Makeup of Changing
Households Nature of
Work
4-16
17. Economic Trends
Income Personal
Growth Savings
Women in Widespread
the Labor Use of
Force Credit
4-17
18. Application of Consumer Behavior
concepts to Marketing
In your previous marketing course, you
would have covered all the key aspects
of culture, social class, groups,
motivation, learning, perception,
attitudes, etc
How could you apply these concepts to
retailing and marketing?
4-18
19. The Kotler Model of Buyer Behavior
Factors influencing
consumer behavior
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24. The text uses a modified Consumer
Behavior Model:
Exhibit 3.6
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25. Consumer Behavior Model
Stimulus:
Refers to a cue that is external to the
individual or a drive that is internal to the
individual.
Cue:
Refers to any object or phenomenon in the
environment that is capable of eliciting a
response.
Drive:
Refers to a motivating force that directs
behavior.
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26. Stimulus
The individual is always involved in passive
information gathering, which consists of receiving
and processing information regarding the existence
and quality of merchandise, services, stores,
shopping convenience, parking, advertising, and any
other factors that a consumer might consider in
making a decision of where to shop and what to
purchase.
Retailers are competing with virtually all other
organizations and individuals for the attention of the
consumer.
To compete for this attention, retailers may employ
various types of stimuli.
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27. Consumer Behavior Model
Passive Information Gathering:
Is the receiving and processing of information
regarding the existence and quality of
merchandise, services, stores, shopping,
convenience, pricing, advertising, and any
other factors that a consumer might consider
in making a purchase.
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28. Consumer Behavior Model
Problem Recognition:
Occurs when the consumer’s desired state of
affairs departs sufficiently from the actual
state of affairs, placing the consumer in a
state of unrest.
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29. Problem Recognition
A critical factor triggering shopping behavior,
although it is not the beginning of the
process.
This model also suggests that need
recognition itself is not enough to trigger
shopping behavior; rather, recognized need
must be balanced against the perceived costs
associated with resolving these needs.
Retailers must understand this "need
versus barrier quotient" which triggers
shopping activity.
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30. 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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31. 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: Buying luxury brands from LV store
■ Self-rewards
Ex: personalized makeovers
■ Adventure
Treasure hunting for bargains
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32. 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
4-32
34. Consumer Behavior Model
Habitual problem solving:
Occurs when the consumer relies on past
experiences and learning to convert the
problem into a situation requiring less
thought. The consumer has a strong
preference for the brand to buy and the
retailer from which to purchase it.
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35. Habitual Problem Solving
Purchase decision process involving little or no conscious effo
■ 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
4-35
36. 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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37. Consumer Behavior Model
Limited Problem Solving:
Occurs when the consumer has a strong
preference for either the brand or the store,
but not both.
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38. Limited Problem Solving
Purchase decisions process involving moderate
amount of effort and time
■ Customers engage in this when
they have had prior experience
with products or services
■ Customers rely more upon
personal knowledge
■ Majority of customer decisions (c) Brand X Pictures/PunchStock
involve limited problem solving
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39. What do Retailers Need to do for Customers
Engaged in Limited Problem Solving?
■ It depends…
■ If the Customer Is Coming to You, Provide a Positive
Experience and Create Loyalty
Make Sure Customer is Satisfied
Provide Good Service, Assortments, value
Offer Rewards to Convert to Loyal Customer
■ If the Customer Goes to Your Competitor’s Store,
Change Behavior
Offer More Convenient Locations, Better Service
and Assortments
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40. 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
PhotoLink/Getty Images
Displayed Near Product of Interest
Use Signage in Aisle or Special Displays
Put Merchandise Where Customers Are
Waiting
4-40
41. Consumer Behavior Model
Extended Problem Solving:
Occurs when the consumer recognizes a
problem but has decided on neither the
brand nor the store.
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42. Extended Problem Solving
Consumers devote time and effort analyzing alternatives
■ 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
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44. Consumer Behavior Model
Active Information Gathering:
Occurs when consumers proactively gather
information.
Once consumers reach the shop trigger
event, they move from need recognition into
active information gathering.
In this phase, consumers gather and evaluate
information that will eventually lead to a
purchase decision
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45. Active Information Gathering (3
stages):
1. Development of an initial
consideration set, the set of
possibilities that should be
considered, as well as the key
attributes on which the purchase
decision will be based.
2. In the second stage, consumers
narrow the consideration set to a
more manageable number of
possibilities.
4-45
46. Active Information Gathering (3
stages):
3. In the final stage, consumers directly
compare key attributes of alternatives
remaining on the "short list."
Here consumers are very active in their
search for specific information and often
begin ascertaining actual prices through store
visits or preliminary negotiating where
appropriate.
One of the most important variables related
to active information gathering is the
information resources used by consumers.
As such, retailers can plan their marketing
programs to communicate via the
appropriate resources. 4-46
47. 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
4-47
48. 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
4-48
49. Consumer Behavior Model
Set of Attributes:
Refers to the characteristics of the store
and its products and services.
The attributes could include a number of
factors such as:
1. Merchandise : range and quality
2. Convenience and location
3. Customer services
4. Prices
5. Brand reputation
4-49
50. Consumer Behavior Model
Evaluate Alternatives:
Occurs when consumers make judgments
regarding the individual product attributes of
a retailer and/or product.
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51. Problem Solving Stages
Based on information gathered in the
previous phase, consumers make a purchase
decision, such as which product and store
they intend to choose.
At this stage, consumers may decide not to
buy, or may reach the buy trigger event, at
which point they make a firm decision to
purchase or negotiate for the purchase of an
item.
We stress that these are "intent" decisions,
because other factors can intervene before
the transaction is completed.
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52. 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
4-52
54. 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
4-54
56. 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
4-56
57. 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)
4-57
58. 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
4-58
59. Purchasing Merchandise or Services
Customers do not always purchase a brand with the
highest overall evaluation.
■ The high-rated item may not be
available in the store.
The McGraw-Hill Companies, Inc./Jill Braaten, photographer
■ How can a retailer increase the
chances that customers will
convert their merchandise
evaluations into purchases?
4-59
60. Consumer Behavior Model
Purchase:
The purchase stage may include final
negotiation, application for credit if
necessary, and the determination of the
terms of purchase.
Retailers need to think of various strategies
and inducements in order to stimulate
purchase.
Lot depends on Point of Sales, Promotions
and Customer Service.
4-60
61. Consumer Behavior Model
Post-Purchase Evaluation:
Consumer perceptions toward the retailer
and/or product purchased after use and
evaluation.
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62. Post-Purchase Stage
Since the dynamic retail patronage model is
cyclical and never ends, successful retailers
must concern themselves not only with the
activities leading to the transaction, but also
with what happens after the transaction, i.e.
during the use and evaluation stage.
Post-Purchase Resentment:
Arises when after the purchase the consumer
becomes dissatisfied with the product,
service, or retailer and thus begins to regret
the purchase was made.
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63. Post-Purchase Stage
Retailers must understand and either
avoid or quickly neutralize
post-purchase resentment.
One method for doing this is customer
satisfaction programs.
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64. 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
4-64
65. 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
4-65
66. Dynamic nature of retail BB
Since the dynamic retail patronage model is
both dynamic and interactive, consumers can
jump to and from the central stage of passive
information gathering from virtually every
other stage in the process.
It must be stressed that retailers must
therefore be constantly vigilant to customer
service, because there is not a beginning and
end to shopping behavior
4-66
67. Stages in the Buying Process (applied to a
retailing context)
4-67
68. Review of the BB model and
implications for retailing/marketing
Problem
Recognition
Information Search
Alternative
Evaluation
Purchase
Post-Purchase
4-68
69. Legal and Ethical Behavior
Dunne Chapter 6
Note: the PWPT slides for this chapter
are provided in brief form. More
details are seen in the Lecture Note
Summaries (Word Document)
4-69
6
9
70. Learning Objectives
1. Explain how legislation constrains a
retailer’s pricing policies.
2. Differentiate between legal and illegal
promotional activities.
3. Explain the retailer’s responsibilities
regarding the products sold.
4. Discuss the impact of governmental
regulation on a retailer’s behavior with
other supply chain members.
4-70
71. Learning Objectives
5. Describe how various state and local laws,
in addition to federal regulations, must
also be considered in developing retail
policies.
6. Explain how a retailer’s code of ethics will
influence its behavior.
Note: this chapter is heavily skewed towards
legislation and business practices in the US; you will
need to consider how this is practiced in the local
retail market. Ethics on the other hand should be
universal in concept but not necessarily adopted in
all retail markets. 4-71
72. Ethical and Legal Constraints Influencing
Retailers
Exhibit 6.1 4-72
74. Pricing Constraints
Horizontal Price Fixing:
Occurs when a group of competing
retailers (or other channel
members operating at a given level
of distribution) establishes a fixed
price at which to sell certain
brands of products.
4-74
75. Pricing Constraints
Vertical Price Fixing:
Occurs when a retailer collaborates
with the manufacturer or
wholesaler to resell an item at an
agreed-on price.
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76. Pricing Constraints
Price Discrimination:
Occurs when two retailers buy an
identical amount of “like grade
and quality” merchandise from the
same supplier but pay different
prices.
4-76
77. Price Discrimination
Cost justification defense.
Changing market defense.
Meeting competition in good faith
defense.
4-77
78. Pricing Constraints
Deceptive Pricing:
Occurs when a misleading price is
used to lure customers into the
store; usually there are hidden
charges or the item advertised may
be unavailable.
4-78
79. Pricing Constraints
Predatory Pricing:
Exists when a retail chain charges
different prices in different
geographic areas to eliminate
competition in selected geographic
areas.
4-79
82. Promotion Constraints
Palming Off:
Occurs when a retailer represents
that merchandise is made by a firm
other than the true manufacturer.
4-82
83. Deceptive Advertising
Deceptive Advertising:
Occurs when a retailer makes false or
misleading advertising claims about the
physical makeup of a product, the benefits to
be gained by its use, or the appropriate uses
for the product.
4-83
84. Deceptive Advertising
Bait-and-Switch Advertising:
Advertising promoting a product at an
unrealistically low price to serve as “bait”
and then trying to “switch” the customer to
a higher-priced product.
4-84
85. Deceptive Sales Practices
Failing to be honest or omitting
key facts in either ad of the sales
presentation.
Using deceptive credit contracts.
4-85
87. Product Constraints
Product Liability Laws:
Deal with the seller’s responsibility to
market safe products. These laws invoke the
“foreseeability” doctrine, which states that a
seller of a product must attempt to foresee
how a product may be misused and warn the
consumer against hazards of misuse.
4-87
88. Product Constraints
Expressed Warranties:
Are either written or verbalized agreements
about the performance of a product and can
cover all attributes of the merchandise or
only one attribute.
4-88
89. Product Constraints
Implied Warranty of Merchantability:
Is made by every retailer when the retailer
sells goods and implies that the merchandise
sold is fit for the ordinary purpose for which
the such goods are typically used.
4-89
90. Product Constraints
Implied Warranty of Fitness:
Is a warranty that implies that the
merchandise is fit for a particular purpose
and arises when the customer relies on the
retailer to assist or make the selection of
goods to serve a particular purpose.
4-90
92. Supply Chain Constraints
Territorial Restrictions:
Are attempts by the supplier,
usually a manufacturer, to limit
the geographic area in which a
retailer may resell merchandise.
4-92
93. Supply Chain Constraints
Dual Distribution:
Occurs when a manufacturer
sells to independent retailers
and also through its own retail
outlets.
4-93
94. Dual Distribution
Ralph Lauren has a dual
distribution strategy
where it markets its Polo
brand apparel through its
own retail stores as well
as through traditional
department stores.
95. Exclusive Dealing
One-Way Exclusive Dealing:
Occurs when the supplier agrees to give
the retailer the exclusive right to
merchandise the supplier’s product in a
particular trade area.
4-95
96. Exclusive Dealing
Two-Way Exclusive Dealing:
Occurs when the supplier offers the
retailer the exclusive distribution of a
merchandise line or product in a
particular trade if in return the retailer
will agree to do something for the
manufacturer such as heavily promote
the supplier’s products or not handle
competing brands.
4-96
97. Tying Agreements
Tying Agreement:
Exists when a seller with a strong product or
service requires a buyer (the retailer) to
purchase a weak product or service as a
condition for buying a strong product or
service.
4-97
98. State, and Local Regulations
Affecting Retailers
Exhibit 6.8 4-98
99. Ethics in Retailing
Ethical Behavior in Buying
Merchandise
Ethical Behavior in Selling
Merchandise
Ethical Behavior in Retailer-
Employee Relationship
4-99
104. Ethical Behavior in Buying
Merchandise
Slotting Fees (Slotting Allowances):
Are fees paid by a vendor for space or a slot
on a retailer’s shelves, as well as having its
UPC number given a slot in the retailer’s
computer system.
4-104
105. Ethical Behavior in Buying
Merchandise
Markdown Money:
Is what retailers charge to suppliers when
merchandise does not sell at what the
supplier intended.
4-105
106. Ethical Behavior in Selling
Merchandise
Products Sold
Should a retailer be allowed to sell any
product, as long as it is not illegal?
Selling Practices
Should a salesperson, while not saying
anything wrong, be allowed not tell the
customer all the facts?
4-106
107. Ethical Behavior in the
Retailer-Employee Relationship
Misuse of Company Assets
Job Switching
Employee Theft
4-107
