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

PART IV: CONSUMER DECISION PROCESS 17-2

OUTLET SELECTION AND PURCHASE 17 CHAPTER OUTLET SELECTION AND PURCHASE 17-3

Consumer Behavior In The News… Luxury brands and department stores – do they mix? Department stores are struggling. Consumers want excitement and variety. Brands want the right brand environment and customer base. Do you think luxury brands get that in department stores? Source: M. Frazier, “Luxury Brands Flee Department Stores,” AdAge.com, July 26, 2005. 17-4

Consumer Behavior In The News… Luxury brands and department stores – do they mix? Do you think luxury brands get that in department stores? They don’t think so...Example: Coach Department store channel down 27% in 5 years! Shifting to own stores because... “Luxury brands [want] 360-degree control, which … is so critically important because this consumer wants care and feeding throughout the entire sales process.” Source: M. Frazier, “Luxury Brands Flee Department Stores,” AdAge.com, July 26, 2005. 17-5

Outlet Selection and Choice Selecting a retail outlet involves the same process as selecting a brand. That is, the consumer recognizes a problem that requires outlet selection engages in internal and possibly external search evaluates the relevant alternatives, and applies a decision rule to make a selection 17-6

Outlet Choice Versus Product Choice Outlet selection is obviously important to managers of retail firms such as Amazon.com, Sear, and L. L. Bean. But it is equally important to consumer goods marketers. Three basic sequences a consumer can follow when making a purchase decision: Brand (or item) first, outlet second; Outlet first, brand second; or Brand and outlet simultaneously 17-7

Outlet Choice Versus Product Choice 17-8

The Retail Scene Retail outlet refers to any source of products or services for consumers. In-home shopping represents a relatively small but rapidly growing percentage of total retail sales. Increasingly consumers see or hear descriptions of products in catalogs, direct-mail, print television or radio on the Internet and then acquire them via mail telephone, or computer orders 17-9

The Retail Scene Internet Retailing Store-based Retailing Barriers to Internet Shopping Characteristics of Online Shoppers Store-based Retailing The Internet as Part of a Multi-Channel Strategy 17-10

The Retail Scene Internet Retailing Internet retailing is a booming and increasingly competitive business: 17-11

The Retail Scene Internet Retailing Forrester Research categorized products and services into three groups based on their purchase characteristics relative to Internet shopping: Replenishment Goods Researched Items Convenience Items 17-12

Online Sales by Categories in Billions The Retail Scene Online Sales by Categories in Billions 17-13

The Retail Scene Consumers shop online for reasons similar to those for shopping from catalogs: 17-14

The Retail Scene Internet Retailing Many industry experts predicted the demise of catalogs. But catalogs and the Internet appear to be complementary. Consumers often purchase online after receiving a catalog! 17-15

The Retail Scene Barriers to Internet Shopping Many barriers still exist to online purchasing, not the least of which is the lack of Internet access. However, many who are online still have never made a purchase. A Forrester Research study found the following reasons among those who are online who have never made a purchase: 17-16

The Retail Scene Barriers to Internet Shopping Online privacy concerns relate to consumer fears regarding how personal information about them that is gathered online might be used, including: targeting children being inundated with marketing messages, and Identity theft Online privacy concerns represent a major challenge to Internet commerce, with estimated lost sales at some $24.5 billion! 17-17

The Retail Scene Barriers to Internet Shopping As a consequence, companies must build and sustain highly trusted online images and relationships. This involves such factors as having adequate privacy policies in place utilizing security verification systems (e.g., VeriSign), and handling consumer information responsibly Just as brand name can be a surrogate quality indicator, so too can it be a surrogate for information safety and security online. 17-18

The Retail Scene Barriers to Internet Shopping Lack of touch or ability to physically try products prior to purchase is also a concern. It affects product categories such as apparel where it can be difficult to simulate experience attributes such as fit. Internet marketers are creating virtual product experiences using such techniques as 3D simulations and rich media. MVM (My Virtual Model) is an example of this technology. 17-19

The Retail Scene Characteristics of Online Shoppers Internet shoppers tend to have higher income and education levels than the general population, although these differences are diminishing. Online shoppers tend to be younger and more affluent than the average Internet users. While men and women are roughly equally split in terms of internet use, women are emerging as the stronger Internet buyer. 17-20

The Retail Scene Characteristics of Online Shoppers Research is moving beyond simple demographics. Trying to understand online shopping in terms of online experience and attitudes and behaviors regarding online shopping. Example: Those who purchase online tend to have more experience online. Those online 10 + years spend 75% more than those online 2 years or less! 17-21

The Retail Scene Characteristics of Online Shoppers Shopping Lovers Adventurous Explorers Suspicious Learners Business Users Fearful Browsers Shopping Avoiders Technology Muddlers Fun Seekers The following are results of a study which identifies the following eight online shopper segments: 17-22

The Retail Scene Characteristics of Online Shoppers A study of Asian consumers yielded a similar set of segments and… Online buyers tended to have more positive attitudes about, and experience with, online shopping and purchasing. 17-23

The Retail Scene Store-based Retailing Most sales take place in physical stores, and this will remain true for the foreseeable future. However traditional store-based retailing is certainly vulnerable in ways that plays into the hands of in-home retailers. 17-24

The Retail Scene Store-based Retailing The following are the results of a Roper survey asking consumers why they don’t like shopping in stores: 17-25

Brand stores add value by providing a fun shopping environment The Retail Scene Store-based Retailing In-store shopping perceived as neither fun nor efficient by many. Retailers fighting back with store-based activates and technologies to improve the experience: Brand stores add value by providing a fun shopping environment 17-26

Applications in Consumer Behavior Store-based Retailing This Wal-Mart ad shows one of the many ways store-based retailers add value for their customers – namely providing a fun shopping environment. Courtesy Wal-Mart Stores, Inc. 17-27

The Retail Scene The Internet as Part of a Multi-Channel Strategy Many think of Internet retailers as distinct from store-based retailers and catalogs. However, pure play Internet retailers such as eBay and Amazon are only part of the pictures. Priceline.com is an example of an exclusive Internet retailer 17-28

The Retail Scene The Internet as Part of a Multi-Channel Strategy A multi-channel retail strategy approach is becoming increasingly essential. This approach can take on many forms and relates to the shifts in consumer shopping patterns. Over 70% of the top 100 online retailers in the U.S. are multi-channel retailers. Multi-channel shoppers are consumers who browse and/or purchase in more than one channel. 17-29

The Retail Scene The Internet as Part of a Multi-Channel Strategy Consumers are utilizing multiple channel in complementary ways since no retailing format is optimal on all dimensions. So, the Internet can be used to overcome a lack of informed salespeople or the inconvenience of researching products in-store, while in-store can provide “touch” and immediacy of purchasing. 17-30

The Retail Scene The Internet as Part of a Multi-Channel Strategy 17-31

Attributes Affecting Retail Outlet Selection Outlet Image Retailer Brands Retail Advertising Outlet Location and Size Retail outlet selection involves a comparison of the alternative outlets on consumer’s evaluative criteria: 17-32

Attributes Affecting Retail Outlet Selection Outlet Image Store image - perception of all the attributes associated with a retail outlet. 17-33

Attributes Affecting Retail Outlet Selection Outlet Image 17-34

Attributes Affecting Retail Outlet Selection Outlet Image As these studies suggest, overall retailer image (both Internet and store-based) relates to both functional and affective dimensions. 17-35

Attributes Affecting Retail Outlet Selection Retailer Brands Store brands are closely related to store image, and at the extreme, the store or outlet is the brand. Traditionally, retailers carried only manufacturers' brands, and only a few, such as Sears and Wards, developed their own brands. Increasingly retailers such as Wal-Mart and Target are developing and promoting high-quality brands with either the store’s name or an independent name. The key to success of store brands--high quality at a reasonable price. 17-36

Attributes Affecting Retail Outlet Selection Retail Advertising Retailers use advertising to communicate their attributes, particularly sale prices, to consumers. Tracking the purchases of an advertised item understates the total impact of the ad. Spillover sales are the sales of additional items to customers who came to purchase an advertised item. 17-37

Attributes Affecting Retail Outlet Selection Retail Advertising Expenditure of Individuals Drawn to a Store by an Advertised Item Source: The Double Dividend. (New York: Newspaper Advertising Bureau Inc., February 1977. 17-38

Attributes Affecting Retail Outlet Selection Retail Advertising Retailers evaluating the benefits of price or of the promotions must consider the impact on overall store sales and profit. Studies show that price is frequently not the primary reason for selecting a particular outlet. Many retailers could benefit from emphasizing service, selection, or affective benefits. Online retailers advertise in mass media to build image and attract consumers. 17-39

Attributes Affecting Retail Outlet Selection Retail Advertising Price Advertising Decisions Retailers face three decisions when they consider using price advertising: How large a price discount should be used? Should comparison or reference prices be used? What verbal statement should accompany the price information? 17-40

Attributes Affecting Retail Outlet Selection Retail Advertising Price Advertising Decisions A reference price is a price with which other prices are compared. An external reference price is a price presented by a marketer for the consumer to use to compare with the current price. An internal reference price is a price or price range that a consumer retrieves from memory to compare with a price in the market. 17-41

Attributes Affecting Retail Outlet Selection Outlet Location and Size Location and size play an important role in store choice. All else equal, consumers generally select the closest store. Outlet size is also important. Generally, customers prefer larger outlets over smaller outlets. The retail attraction model, or the retail gravitation model, is used to calculate the level of store attraction based on store size and distance from the consumer. 17-42

Consumer Characteristics and Outlet Choice Perceived Risk Shopping Orientation Two consumer characteristics that are particularly relevant to store choice: 17-43

Consumer Characteristics and Outlet Choice Perceived Risk The purchase of products involves the risk that they may not perform as expected; such failure may result in a high Social cost e.g., a hairstyle that is not appreciated by one’s peers Financial cost e.g., an expensive pair of shoes that become too uncomfortable to wear Time cost e.g., a television repair that required the set to be taken to the shop, left, and then picked up later Effort cost e.g., a computer jump drive that is loaded with several hours of work before it fails Physical cost e.g., a new medicine that produced a harmful side effect 17-44

Consumer Characteristics and Outlet Choice Perceived Risk The perception of these risks differs among consumers, depending in part on their past experiences and lifestyles. For this reason perceived risk is considered a consumer characteristic as well as a product characteristic. 17-45

Consumer Characteristics and Outlet Choice Perceived Risk The Economic and Social Risk of Various Types of Products 17-46

Consumer Characteristics and Outlet Choice Shopping Orientation A Shopping orientation is a shopping style that puts particular emphasis on certain activities or shopping motivations. A recent study used projective techniques (in this case, thinking about an animal) to ascertain the ways college students approach shopping. 17-47

Consumer Characteristics and Outlet Choice Shopping Orientation: Part I 17-48

Consumer Characteristics and Outlet Choice Shopping Orientation: Part II 17-49

In-Store and Online Influences on Brand Choices Often we enter a retail outlet with the intention of purchasing a particular brand but leave with a different brand or additional items. Influences operating within the retail outlet influence our shopping patterns. Unplanned purchases are purchases made in a retail outlet that are different from those the consumer planned to make prior to entering that retail outlet. 17-50

In-Store and Online Influences on Brand Choices Supermarket Decisions: Two-Thirds Are Made In-Store 17-51

In-Store and Online Influences on Brand Choices In-Store Purchase Behavior 17-52

In-Store and Online Influences on Brand Choices Point-Of-Purchase Materials Price Reductions and Promotional Deals Outlet Atmosphere Stockouts Web Site Functioning and Requirements Sales Personnel Strategies used by manufacturers and retailers to influence in-store and online decisions: 17-53

In-Store and Online Influences on Brand Choices Point-Of-Purchase Materials Shelf-Based Point-of-Purchase Materials 17-54

In-Store and Online Influences on Brand Choices Price Reductions and Promotional Deals Price reductions and promotional deals coupons multiple-item discounts, and gifts are generally accompanied by the use of some point-of-purchase materials. 17-55

In-Store and Online Influences on Brand Choices Price Reductions and Promotional Deals Sales increases in response to price reductions come from four sources Current brand users may buy ahead of their anticipated needs (stockpiling). Users of competing brand may switch to the reduced price brand. Nonproduct category buyers may buy the brand because it is now a superior value to the substitute product. Consumers who do not normally shop at the store may come to the store to buy the brand. 17-56

In-Store and Online Influences on Brand Choices Outlet Atmosphere Store atmosphere is influenced by such attributes as lighting layout presentation of merchandise fixtures floor coverings colors sounds odors dress and behavior of sales and service personnel 17-57

In-Store and Online Influences on Brand Choices Outlet Atmosphere Atmospherics is the process managers use to manipulate the physical retail or service environment to create specific mood responses in shoppers. Internet retailers also have online atmospheres that are determined by graphics colors layout content entertainment features inactivity tone 17-58

In-Store and Online Influences on Brand Choices Outlet Atmosphere 17-59

In-Store and Online Influences on Brand Choices Stockouts Stockouts occur when the store is temporarily out of a particular brand. Results in… 17-60

In-Store and Online Influences on Brand Choices Web Site Functioning and Requirements Consumers often research online then buy in traditional stores. However, losses also occur during the online shopping process. A DoubleClick study found the following reasons for shopping cart abandonment: 17-61

In-Store and Online Influences on Brand Choices Sales Personnel The effectiveness of sales efforts is influenced by the interaction of the salesperson’s knowledge, skill, and authority the nature of the customer’s buying task the customer-salesperson relationship In the online context, marketers are testing so-called “pop-up” sales clerks that interact with customers as they shop on their web site. 17-62

Purchase Once the consumer has selected the brand and retail outlet, he/she must complete the transaction, referred to as purchasing or renting the product. In traditional retail environments, this was straightforward with little delay, with the exception of a major and complex purchase. Many consumers starting to make an online purchase quit without making one for a variety of reasons. 17-63

Purchase Increasingly the percentage of potential purchasers who actually purchase is a major challenge for most online retailers. Credit plays a major role in consumer purchases. Businesses need to simplify the actual purchase process as much as possible. 17-64